In this article, I have evaluated leading medical stocks AbbVie Inc. (ABBV) and Pfizer Inc. (PFE) to analyze which stock is the better buy. After thoroughly evaluating these stocks, I think ABBV might be the right pick for the reasons discussed in this article.
The pharmaceutical landscape has undergone a massive transformation with the emergence of new technologies and cost-effective and more efficient manufacturing approaches. In addition, increasing investment flow in this space is expected to impact the market growth positively.
Furthermore, the paradigm shift towards integrated, smart, and data-rich paperless operations has resulted in error-free and precise production. Such ongoing developments have propelled drug manufacturing. The global pharmaceutical manufacturing market is expected to grow at a CAGR of 11.3% until 2028.
Additionally, the introduction of generic medicines has helped sustain the country's healthcare system with improved patient access and generated savings for taxpayers, employers, and insurance providers.
The US generic drug market is expected to reach $110.70 billion by 2028, exhibiting a CAGR of 4.1%.
ABBV is a clear winner in terms of price performance, with 5.3% returns over the past month compared to PFE’s decline of 2.1%. ABBV declined 3.1% over the past six months compared to PFE’s 16.1% decline.
Here are the reasons why I think ABBV could perform better in the near term:
Recent Developments
On July 21, ABBV announced the European Medicines Agency's (EMA) Committee for Medicinal Products for Human Use (CHMP) had adopted a positive opinion recommending the granting of conditional marketing authorization for epcoritamab (TEPKINLY) as a monotherapy for the treatment of adult patients with relapsed or refractory (R/R) diffuse large B-cell lymphoma (DLBCL) after two or more lines of systemic therapy. The final European Commission decision on this indication for epcoritamab is anticipated later this year.
Conversely, on July 18, PFE announced a new partnership to create a new pipeline of innovative medicines. Under the terms of the novel agreement, Flagship, and PFE will each invest $50 million upfront to explore opportunities to develop ten single-asset programs by leveraging Flagship's ecosystem of more than 40 human health companies and multiple biotechnology platforms.
PFE will fund and have an option to acquire each selected development program. Flagship and its bioplatform companies will be eligible to receive up to $700 million in milestones and royalties for each successfully commercialized program.
Recent Financial Results
For the fiscal first quarter ended March 31, 2023, ABBV’s net revenues came in at $12.23 billion. The company’s non-GAAP after-tax earnings came in at $4.39 billion, while its non-GAAP EPS came in at $2.46. Also, operating earnings came in at $2.77 billion.
On the contrary, during the fiscal first quarter ended March 31, 2023, PFE’s total revenues decreased 28.8% year-over-year to $18.28 billion. Non-GAAP net income attributable to PFE common shareholders decreased 24.7% year-over-year to $7.03 billion, while its non-GAAP earnings per share decreased 24.1% year-over-year to $1.23. Also, income from continuing operations came in at $5.56 billion.
Past And Expected Financial Performance
Over the past five years, ABBV’s revenue grew at 13.9% CAGR. Analysts expect ABBV’s revenue to be 52.63 billion this year. Its EPS is expected to rise 1.8% this year. Also, its EPS is expected to fall 21.2% in the current year, 16.9% in the -to-be-reported quarter, and 23% in the current quarter.
Conversely, PFE’s revenue increased at a CAGR of 12% over the past five years. Its revenue is expected to decline 32.9% this year. Moreover, its EPS is expected to fall 49.5% this year, 71.6% in the to-be-announced quarter, and 59.6% in the current quarter.
Valuation
ABBV’s forward P/E multiple of 23.56 is higher than PFE’s 13.10. Moreover, ABBV’s forward EV/EBIT ratio of 12.48x is higher than PFE’s 10.86x.
Thus, PFE is more affordable.
Profitability
ABBV is more profitable, with a trailing-12-month gross profit margin of 70.96%, which is higher than PFE’s 68.93%. In addition, ABBV’s trailing-12-month levered FCF margin of 38.07% compares to PFE’s 19.32%.
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 in Quality. Its trailing-12-month gross profit margin and trailing-12-month cash per share of 70.96% and 3.80x are 27.7% and 194.7% higher than the industry averages of 55.58% and 1.29x.
On the other hand, PFE has a C grade in Quality. Its trailing-12-month cash per share of 0.38x is 70.3% lower than the industry average of 1.29x. However, its trailing-12-month gross margin of 68.93% is 24% higher than the 55.58% industry average.
Moreover, ABBV has a B in Value. Its forward EV/EBIT of 12.44x is 27.6% lower than the industry average of 17.19x. Its forward EV/EBITDA multiple of 12.01 is 12.6% lower than the industry average of 13.75.
In contrast, PFE has an A grade for Value. PFE’s forward EV/EBIT of 10.89x is 36.6% lower than the industry average of 17.19x. Its forward EV/EBITDA multiple of 9.28 is 32.5% lower than the industry average of 13.75.
Among the 167 stocks in the Medical - Pharmaceuticals industry, ABBV is ranked #5, while PFE is ranked #42.
Beyond what we’ve stated above, we have also rated both stocks for Growth, Value, Momentum, Stability, and Sentiment. Click here to view ABBV ratings. Get all PFE ratings here.
The Winner
The growing prevalence of chronic diseases and the introduction of generic medicines with improved patient access is leading to an increasing number of patients undergoing medical treatment, thus creating demand for medical facilities. Industry players such as ABBV and PFE should benefit from the industry tailwinds.
However, given ABBV's relatively strong financial performance, and high profitability, it might be the better buy than PFE.
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 were trading at $142.41 per share on Tuesday morning, down $0.77 (-0.54%). Year-to-date, ABBV has declined -9.23%, versus a 19.80% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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