Pharmaceutical companies are known to maintain their profit margins even during economic downturns due to inelastic demand for their products. In this piece, I evaluated two pharma stocks, AbbVie Inc. (ABBV) and Pfizer Inc. (PFE), to determine which comes out on top. Based on the fundamental comparison of these stocks, I believe ABBV is the better buy for the reasons explained throughout this article.
Global demand and spending for medicines are expected to increase significantly in the upcoming years due to the increasing prevalence of chronic diseases, including diabetes, cancer, arthritis, and heart disease, among others, and a rapidly aging population worldwide.
In addition, numerous research & development (R&D) efforts in the pharma industry are fueling its growth. R&D is the foundation of discovering innovative medicines and treatments that change patients’ lives. Moreover, the COVID-19 pandemic has put the healthcare sector, including pharma, in the spotlight, with a rise in government initiatives and funding to accelerate the sector’s expansion.
According to Statista, revenue in the pharmaceutical market is expected to reach $1.16 trillion in 2023. Moreover, in global comparison, most revenue of nearly $624.10 billion will be generated in the United States. Further, the market is projected to reach $1.44 trillion by 2027, growing at a 5.4% CAGR.
Furthermore, rapid digital transformation in pharma is reshaping the industry. There is a global spike in traffic to health and medicine websites. Cutting-edge technologies, including artificial intelligence (AI), cloud computing, automation, and big data analytics, have changed how the industry operates.
Digital technologies are increasingly being applied to the pharmaceutical value chain in various areas, such as drug discovery and development, clinical trials, drug production, smart process automation, and supply chain management.
As per a report by Future Market Insights, the global ePharmacy market is expected to expand at a 14.3% CAGR to reach a market valuation of $351.90 billion by 2033. The growing use of the internet globally, enhanced healthcare service digitization, and increasing consumer preference for online shopping should boost the market’s growth. The industry’s tailwinds should bode well for ABBV and PFE.
ABBV has gained marginally over the past month compared to PFE’s 5.7% decline. Also, ABBV has plunged 15.8% over the past six months, while PFE slumped 26.6%. Over the past year, ABBV declined 10.6%, while PFE lost 29.4%.
Here are the reasons why we think ABBV could perform better in the near term:
Recent Developments
On June 23, ABBV announced that the European Medicines Agency’s (EMA) Committee for Medicinal Products for Human Use (CHMP) adopted a positive opinion recommending the approval of atogepant for the prophylaxis of migraine in adults. If approved, ABBV will be the only company to offer a once-daily oral calcitonin gene-related peptide receptor antagonist treatment in the EU.
On May 19, the U.S. Food and Drug Administration (FDA) approved ABBV and Danish drugmaker Genmab’s blood cancer therapy, epcoritamab, for adult patients who have received at least two prior lines of treatment. The therapy, epcoritamab, will be sold under the brand name Epkinly, which treats a type of advanced large B-cell lymphoma. This approval expands ABBV’s product pipeline.
On June 1, PFE announced that the FDA approved ABRYSVO™ (Respiratory Syncytial Virus Vaccine), the company’s bivalent RSV prefusion F (RSVpreF) vaccine, for the prevention of lower respiratory tract disease caused by RSV in older adults.
Also, on May 25, PFE’s PAXLOVID™ received FDA approval for treating mild-to-moderate COVID-19 in adults at high risk for progression to severe COVID-19, including hospitalization or death. Such approvals and advancements in PFE’s product pipeline might boost its revenue stream and growth.
Recent Financial Results
ABBV’s global net revenues from the neuroscience portfolio increased 13.9% year-over-year to $1.70 billion for the first quarter ended March 31, 2023. The company’s revenues and EPS were ahead of its expectation, driven by solid commercial execution across all areas of its diversified portfolio. It reported total net revenues and adjusted EPS of $12.23 billion and $2.46, respectively.
For the first quarter that ended March 31, 2023, PFE’s revenue from Specialty Care grew 3.2% year-over-year to $3.61 billion. However, its total revenues decreased 28.8% year-over-year to $18.28 billion. Also, the company’s adjusted income and EPS declined 24.7% and 24.1% from the prior-year period to $7.04 billion and $1.23, respectively.
Past And Expected Financial Performance
Over the past three years, ABBV’s revenue and EBITDA grew at 18.6% and 22.1% CAGRs, respectively. Moreover, the company’s normalized net income increased at a 15% CAGR over the same time frame. Also, its total assets and levered free cash flow increased at CAGRs of 13.8% and 33.2% during the same period, respectively.
Analysts expect ABBV’s revenue and EPS for the fiscal year (ending December 2023) to decrease 9.2% and decline 20.1% year-over-year to $52.69 billion and $11.01, respectively. For the fiscal year 2024, the company’s revenue and EPS are expected to decrease 0.5% and increase 1% from the previous year to $52.44 billion and $11.12, respectively.
PFE’s revenue and EBITDA grew at 34.6% and 48.3% CAGRs over the past three years, respectively. Over the same period, the company’s net income and EPS increased at 22.7% and 22.1% CAGRs, respectively, while its levered free cash flow grew at a CAGR of 7.7%.
For the fiscal year ending December 2023, PFE’s revenue and EPS are expected to decrease 32.4% and decline 49.3% year-over-year to $67.87 billion and $3.34, respectively. Furthermore, analysts expect the company’s revenue and EPS for the fiscal year 2024 to decline 0.2% and grow 4.7% year-over-year to $67.72 billion and $3.49, respectively.
Profitability
PFE’s trailing-12-month revenue is 1.64 times what ABBV generates. However, ABBV is slightly more profitable, with a trailing-12-month gross profit margin of 70.96% compared to PFE’s 68.93%. Also, ABBV’s trailing-12-month EBITDA margin of 52.03% is higher than PFE’s 43.72%.
Furthermore, ABBV’s trailing-12-month Return on Equity (ROE) of 51.27% is favorably higher than PFE’s 31.62%. Likewise, ABBV’s trailing-12-month levered FCF margin of 38.07% compared to PFE’s 19.32%.
Valuation
In terms of forward P/E, PFE is currently trading at 13.34x, 44% lower than ABBV, which is trading at 23.83x. PFE’s forward EV/Sales multiple of 3.28 is lower than ABBV’s 5.67. Moreover, PFE’s forward EV/EBITDA of 9.22x is 20.4% lower than ABBV’s 11.58x. Also, PFE’s trailing-12-month Price/Cash Flow multiple of 8.60 compared to ABBV’s 10.02.
Thus, PFE is relatively more affordable.
POWR Ratings
ABBV has an overall rating of A, which equates to a Strong Buy in our proprietary POWR Ratings system. Conversely, PFE has an overall rating of C, translating to a Neutral. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. ABBV has an A grade for Quality, justified by its higher-than-industry profitability. AFLYY’s trailing-12-month gross profit margin and cash per share of 70.96% and 3.80 compared to the industry averages of 55.64% and 1.28, respectively.
On the other hand, PFE has a C grade for Quality, consistent with its mixed profitability. PFE has a trailing-12-month gross profit margin of 68.93%, 23.9% higher than the industry average of 55.64%. However, the stock’s trailing-12-month cash per share multiple of 0.38 is 70% lower than the industry average of 1.28.
Also, ABBV has a B grade for Growth, in sync with its solid financial performance in the last reported quarter. In contrast, PFE has an F grade for Growth, consistent with its deteriorating financials.
Of the 167 stocks in the Medical - Pharmaceuticals industry, ABBV is ranked #2, while PFE is ranked #44.
Beyond what we’ve stated above, we have also rated both stocks for Stability, Momentum, Sentiment, and Value. Click here to view ABBV Ratings. Get all PFE ratings here.
The Winner
The pharmaceutical industry is well-poised for robust growth in the foreseeable years, thanks to the increasing prevalence of chronic diseases, an aging population worldwide, government support, and the growing adoption of new technologies. Moreover, irrespective of the economic cycle, pharmaceutical companies maintain their profit margins to the nature of their businesses.
Given the industry’s bright growth prospects, pharmaceutical stocks ABBV and PFE should grow significantly in the near future. However, PFE’s relatively poor financials, unhealthy profitability, and dim growth outlook make its competitor ABBV the better buy now.
Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Medical-Pharmaceuticals industry here.
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ABBV shares fell $0.30 (-0.22%) in premarket trading Thursday. Year-to-date, ABBV has declined -13.32%, versus a 16.03% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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