AbbVie (NYSE: ABBV) and Johnson & Johnson (NYSE: JNJ) are two titans in the pharmaceutical industry, often considered by investors seeking stable returns and dividend income. Both stocks currently trade at a similar forward earnings multiple of 15x, prompting a crucial question for investors: When we analyze NYSE: ABBV compare to JNJ, which stock presents a more compelling investment opportunity? While both are attractive options in the healthcare sector, this analysis delves into a detailed comparison, arguing why AbbVie stock is poised to outperform Johnson & Johnson over the next three years, driven by its robust pipeline of new drugs and strategic market positioning. We will compare historical stock performance, revenue growth, profitability, financial health, and future prospects to provide a comprehensive outlook for investors considering ABBV and JNJ.
1. AbbVie’s Stock Market Dominance Over Johnson & Johnson
Analyzing stock performance, AbbVie (ABBV) has significantly outperformed Johnson & Johnson (JNJ) in recent years. Since early January 2021, ABBV stock has surged by an impressive 85%, climbing from around $90 to approximately $165. In stark contrast, JNJ stock has only increased by about 10% during the same period. While the broader S&P 500 index has shown a strong 55% growth over these four years, AbbVie has clearly surpassed even this benchmark for a significant portion of the time.
Looking at year-specific returns, ABBV demonstrated robust growth with 32% in 2021 and 24% in 2022, before leveling out with 0% in 2023. JNJ, on the other hand, experienced more modest gains of 11% in 2021 and 6% in 2022, followed by a decline of -9% in 2023. Notably, AbbVie’s performance dipped below the S&P 500’s impressive 24% return in 2023, while JNJ underperformed the S&P 500 in both 2021 and 2023. This comparison highlights AbbVie’s stronger overall stock performance trajectory in recent years, despite some fluctuations.
It’s important to recognize the general difficulty in consistently outperforming the S&P 500, even for major players in the healthcare sector like CVS, UNH, and PFE, or tech giants like GOOG, TSLA, and MSFT. However, the Trefis High Quality Portfolio, a curated collection of 30 stocks, has managed to outperform the S&P 500 each year over the same period. This success underscores the potential of a strategically selected portfolio to deliver superior returns with reduced risk, as evidenced by the HQ Portfolio’s performance metrics.
2. Revenue Growth: J&J Currently Leads, But Future Favors AbbVie
When comparing revenue growth, Johnson & Johnson currently exhibits a stronger upward trend. J&J’s revenue has increased by 11.4% from $78.7 billion in 2021 to $87.7 billion over the last twelve months. Conversely, AbbVie’s sales have slightly decreased by 1.2% from $56.2 billion to $55.5 billion during the same timeframe.
Johnson & Johnson’s revenue growth is fueled by strong performances in both its pharmaceutical and medical devices segments. Key growth drivers in pharmaceuticals include Darzalex (multiple myeloma treatment) and Stelara (autoimmune drug). Furthermore, newer drugs like Carvykti (multiple myeloma) and Spravato (antidepressant) are gaining market traction, contributing to revenue expansion.
However, J&J faces challenges with older drugs facing generic competition, such as Remicade, whose sales have declined by 48% between 2021 and 2023. A significant future headwind is the anticipated loss of U.S. market exclusivity for Stelara in 2025. Stelara, a top-selling drug with $11 billion in sales in 2023, already saw a 7% year-over-year sales decline in Q3 2024, and this decline is expected to accelerate post-2025. On a positive note, J&J’s medical devices business, particularly Cardiovascular Care boosted by the Abiomed acquisition in 2022, is performing well.
AbbVie’s revenue decline is primarily attributed to the loss of market exclusivity for Humira, its blockbuster drug. Humira sales peaked at $21.2 billion in 2022 but plummeted 32.2% year-over-year to $14.4 billion in 2023. This downward trend continued in the first nine months of 2024, with sales dropping another 34% to $7.2 billion.
Despite Humira’s decline, AbbVie is effectively mitigating revenue losses through market share gains from newer drugs, notably Skyrizi and Rinvoq, used to treat plaque psoriasis and rheumatoid arthritis. These drugs generated $11.7 billion in 2023, a remarkable 53% year-over-year growth. The antidepressant Vraylar also saw significant sales growth of 35% to $2.8 billion in 2023. This momentum continued into the first nine months of 2024, with Skyrizi and Rinvoq sales increasing by approximately 50% year-over-year to over $12 billion.
AbbVie is also actively pursuing inorganic growth through strategic acquisitions. Following the Allergan acquisition in 2020, AbbVie acquired ImmunoGen for $10.1 billion, gaining rights to Elahere, an ovarian cancer treatment with projected peak sales exceeding $2 billion. The acquisition of Cerevel Therapeutics for $8.7 billion, though bringing Emraclidine which recently faced clinical trial setbacks, and the pending acquisition of Aliada Therapeutics for $1.4 billion to bolster its Alzheimer’s pipeline, demonstrate AbbVie’s commitment to future growth.
Looking ahead, both AbbVie and J&J are projected to experience mid-single-digit average annual revenue growth over the next few years. However, AbbVie’s growth trajectory is anticipated to steepen as new drugs fully compensate for Humira losses, while J&J faces the Stelara patent cliff.
3. Profitability: Similar Operating Margins for Both Pharma Giants
In terms of profitability, J&J’s operating margin has slightly improved from 26.6% in 2021 to 27.5% in 2023. Conversely, AbbVie’s operating margin decreased from 31.9% to 23.5% during the same period, largely due to Humira’s biosimilar competition impacting pricing and sales. However, examining the last twelve months, both companies exhibit similar operating margins, with J&J at 26.1% aligning closely with AbbVie’s current margin.
J&J’s recent margin fluctuations are partly attributed to one-time charges and acquired IPR&D expenses. This led to a revised 2024 adjusted earnings outlook of $9.91 per share, down from $10.05, primarily due to V-Wave acquisition costs. J&J reported adjusted earnings of $9.92 per share in 2023.
AbbVie’s margin compression, combined with IPR&D and milestone-related expenses, has also impacted its recent bottom line. For full-year 2024, AbbVie projects adjusted earnings per share between $10.90 and $10.94, compared to $11.11 in 2023. While short-term profitability metrics are similar, AbbVie’s potential for margin expansion as newer, high-margin drugs gain prominence offers an attractive future outlook.
4. Financial Position: J&J Shows Lower Debt, Higher Cash
Analyzing financial risk, Johnson & Johnson demonstrates a stronger financial position. J&J’s debt-to-equity ratio is significantly lower at 10% compared to AbbVie’s 24%. Furthermore, J&J’s cash-to-assets ratio is higher at 11% versus AbbVie’s 5%, indicating a stronger cash cushion and less leveraged balance sheet for J&J. While J&J exhibits a more conservative financial profile currently, AbbVie’s strategic investments in acquisitions and R&D are aimed at driving future growth and shareholder value, potentially justifying the higher leverage in the context of its growth prospects.
5. Investment Outlook: AbbVie Poised for Outperformance
Overall, Johnson & Johnson presents strengths in current revenue growth, profitability, and financial stability. However, considering future prospects and growth catalysts, AbbVie emerges as the more compelling investment choice between the two.
JNJ stock is currently trading at 15x its forward expected earnings of $9.95 per share (Trefis estimate), aligning with its three-year average P/E ratio of 17x. Our Johnson & Johnson valuation estimate is $172 per share, suggesting a modest upside of over 10% from current levels of $153, based on a 17x P/E ratio. However, the impending Stelara patent expiration limits significant valuation multiple expansion for JNJ stock.
In contrast, ABBV stock also trades at a 15x forward earnings multiple, based on a consensus estimate of $10.94 per share. While this is above its three-year average P/E ratio of 12x, a higher valuation multiple for AbbVie appears justified, and potentially even beyond 15x, given the strong market uptake of Skyrizi and Rinvoq and their anticipated future growth trajectory.
AbbVie is effectively navigating the Humira patent cliff, with Skyrizi and Rinvoq expected to drive substantial sales growth in the coming years. Combined peak annual sales for these two drugs are projected to reach an impressive $32 billion. Despite Humira’s biosimilar erosion, AbbVie is expected to grow its overall sales and earnings, supporting a potential upward revision in its valuation multiple. Notably, the average analyst price target for ABBV of $205 implies an upside of over 20% from current levels around $165, further reinforcing the positive outlook for AbbVie’s stock.
While AbbVie stock is anticipated to outperform JNJ stock in the next three years, comparing Johnson & Johnson’s peers can provide additional context and insights. Exploring peer comparisons and broader industry trends can further inform investment decisions in the pharmaceutical sector.
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