Pfizer Or AbbVie For Better Returns?

by Trefis Team
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Pfizer’s stock (NYSE:PFE) has declined by 11% since early February after the WHO declared the coronavirus a global health emergency, while AbbVie’s stock (NYSE:ABBV) has fared much better and gained 22%. The lockdown in various parts of the world has had a negative impact on the pharmaceuticals industry worldwide, due to the postponement of elective surgeries and hospital visits for non-emergency cases, resulting in lower prescriptions issued. This will likely have an impact on the business of both the companies. That said, we believe AbbVie will likely fare better than Pfizer because of its current valuation, and the recent Allergan acquisition, which has expanded its drugs portfolio, while Pfizer bets on biosimilars for some of the blockbuster drugs to drive its future growth, along with expansion of its breast cancer drug – Ibrance.

Our conclusion is based on our detailed dashboard analysis, ‘Is Pfizer Expensive Or Cheap vs. AbbVie?‘, wherein we compare trends in key metrics for the two pharmaceutical companies over the years to determine their relative valuations under the current circumstances. We summarize parts of this analysis below.

AbbVie Will Likely Outperform Pfizer Over The Coming Months

AbbVie’s P/E based on 2019 earnings has increased from 10x in 2019 to under 11x currently, while Pfizer’s multiple has declined from 13x to 11x. The growth in AbbVie’s multiple can be attributed to its Allergan acquisition, which will now have a more diversified portfolio. Prior to the Allergan acquisition, over 60% of AbbVie’s sales came from a single drug Humira, which will see its patent expire in 2023, and Pfizer’s biosimilar for Humira has been approved by the U.S. FDA. AbbVie also reported a good Q1, considering that most of the businesses started to face headwinds from the Covid-19 crisis. The company reported a 10% jump in top line, while its adjusted EPS grew 13% to $2.42. The growth was led by stocking up of drugs both at patient and the channel level, including Humira and Venclexta.

Pfizer’s multiple of 11x, though, appears lower compared than the levels seen over the past few years, but is similar to that of  AbbVie. The company’s revenues and margins are at risk, given its exposure to vaccines, which will likely see bigger impact in the current crisis, as people avoid visiting healthcare institutions for non-emergency cases.

But How Long Will Market Remain Under Pressure?

  • The expected timeline for recovery in global economic conditions, hinge on the broader containment of the coronavirus spread. Our dashboard forecasting US Covid-19 cases with cross-country comparisons analyzes expected recovery time-frames and possible spread of the virus.
  • Further, our dashboard -28% Coronavirus crash vs. 4 Historic crashes builds a complete macro picture and complements our analyses of the coronavirus outbreak’s impact on a diverse set of AbbVie’s multinational peers. The complete set of coronavirus impact and timing analyses is available here.
  • We believe there will be a recovery in demand for most sectors by late June or early July, with gradual lifting of lockdowns and a gradual rise in number of Covid-19 cases remaining within the manageable capacity of hospitals and care providers.
  • Although most companies will report poor Q2 results starting mid-July, market expectations will be buoyed by a visible improvement in the situation on the ground.
  • While AbbVie looks like a better investment option compared to Pfizer in the long run, which S&P 500 component stocks have the best chance of outperforming the benchmark index? Our 5 In the S&P 500 That’ll Beat The Index: TWTR, ISRG, NFLX, NOW, V look promising.

Overall, AbbVie’s stock has given better returns over the recent months, as well as over the recent years, and rightly so, given its historical revenue and earnings growth being better than Pfizer. Looking at the current valuation, AbbVie’s P/E ratio is lower compared to its own P/E ratio over the recent years, and in-line when compared to Pfizer, and it appears to be an attractive bet compared to Pfizer at this time, with more upside potential from the current levels, in our view.

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