Should You Pick Bristol Myers Squibb Stock Over AbbVie?

Given its better valuation, we believe that Bristol Myers Squibb stock (NYSE: BMY) is currently a better pick than its peer – AbbVie stock (NYSE:ABBV). BMY stock trades at a much lower multiple of 2.2x revenues, versus 6.2x for ABBV. This can be attributed to the latter’s superior revenue growth and profitability. Still, we think this gap in valuation will narrow in favor of Bristol Myers Squibb in the coming years. There is more to the comparison, and in the sections below, we discuss why we think Bristol Myers Squibb will outperform AbbVie in the next three years. We compare a slew of factors, such as historical revenue growth, returns, and valuation in an interactive dashboard analysis – Bristol Myers Squibb vs. AbbVie – parts of which are summarized below.

1. ABBV Stock Has Fared Much Better Than BMY

BMY stock has seen little change, moving slightly from levels of $55 in early January 2021 to around $50 now, vs. an increase of about 115% for ABBV, moving from $90 to $195 over the same period. In comparison, the S&P500 index has seen 50% growth over this period.

The performance of these stocks with respect to the index has been quite volatile. Returns for BMY stock were 3% in 2021, 19% in 2022, and -26% in 2023, while that for ABBV were 32%, 24%, and 0%, respectively. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 — indicating that BMY underperformed the S&P in 2021 and 2023 and ABBV underperformed the S&P in 2023.

In fact, consistently beating the S&P 500 — in good times and bad — has been difficult over recent years for individual stocks; for heavyweights in the Health Care sector including JNJ, PFE, and UNH, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics.

2. AbbVie Has Seen Better Revenue Growth 

Bristol Myers Squibb’s revenue rose at an average annual rate of 2% from $42.5 billion in 2020 to $45 billion in 2023, while AbbVie’s revenue grew at an average rate of 6.5% from $45.8 billion to $54.3 billion over this period.

Bristol Myers Squibb’s revenue growth was driven by the market share gains for some of its drugs, including its anticoagulant – Eliquis. However, falling sales of Revlimid amid biosimilar competition has offset some of these gains. While the company expects Revlimid sales to continue to erode, some of its newer drugs, such as Camzyos, Sotyktu, and Opdualag, are expected to garner sales of over $1 billion each by 2026. The company is also looking at inorganic growth to bolster its sales and earnings growth. It completed three acquisitions this year – Mirati Therapeutics, RayzeBio, and Karuna Therapeutics.

AbbVie’s revenue growth has been buoyed by its Allergan acquisition in 2020. The company is best known for its blockbuster drug – Humira – used to treat rheumatoid arthritis and Crohn’s disease, among others. Humira’s sales peaked at $21.2 billion in 2022, before falling 32.2% y-o-y to $14.4 billion in 2023. This can be attributed to the biosimilar competition.

AbbVie, to some extent, can combat the loss of revenue from Humira by market share gains for some of its relatively new drugs, primarily Skyrizi, and Rinvoq. These drugs are used to treat plaque psoriasis and rheumatoid arthritis. For perspective, these two products garnered $11.7 billion in 2023, reflecting a solid 53% y-o-y growth. The sales of its anti-depressant – Vraylar – also spiked 35% y-o-y to $2.8 billion in 2023. For the six-month period ending June 2024, Skyrizi and Rinvoq continued their market share gains, with sales rising 50% y-o-y to over $7 billion.

AbbVie is also looking at inorganic growth. After its acquisition of Allergan in 2020, it acquired ImmunoGen for $10.1 billion this year, giving it rights to Elahere — an ovarian cancer treatment – with estimated peak sales of over $2 billion.

Looking forward, we expect both Bristol Myers Squibb and AbbVie’s sales to rise at a mid-single-digit average rate for the next three years.

3. AbbVie Is More Profitable

Bristol Myers Squibb’s reported operating margin improved from 5.1% in 2020 to 18.2% in 2023, while that for AbbVie contracted from 27.8% to 24.9% over this period. Looking at the last twelve months period, AbbVie’s operating margin of 24.9% fares much better than 15.2% for Bristol Myers Squibb. Notably, Bristol Myers Squibb’s adjusted earnings are expected to be around $0.75 in 2024, reflecting a significant drop from $7.51 it reported last year. This can be attributed to charges related to the acquisitions this year. We expect the earnings to rebound to $6.90 in 2025.

4. AbbVie Fares Better In Terms of Financial Risk

Looking at financial risk, we believe AbbVie has an edge over Bristol Myers Squibb. Its 20% debt as a percentage of equity is lower than 52% for Bristol Myers Squibb. Also, its 9% cash as a percentage of assets is higher than 7% for the latter. This implies that AbbVie has a better debt position and more cash cushion.

5. The Net of It All

We see that AbbVie has seen better revenue growth, is more profitable, and offers lower financial risk than Bristol Myers Squibb. Now, looking at prospects, we believe BMY is the better choice of the two, given its attractive valuation. At its current levels, BMY stock is trading at 2.2x revenues, versus its average P/S ratio of 2.5x seen over the last three years. In comparison, at its current levels of around $195, AbbVie stock trades at 6.2x revenues, versus its average P/S ratio of 4.5x over the last three years. This implies that BMY stock has some room to grow, while ABBV stock looks fully priced, in our view.

Although there are near-term headwinds for Bristol Myers Squibb, primarily for Revlimid, they seem to be already priced in. Its long-term growth prospects look robust, with its new drugs portfolio expected to see a significant rise in sales over the coming years. The company should be able to expand its pipeline through its new acquisitions of Mirati, Karuna, and RayzeBio.

[1] Returns as of 9/25/2024
[2] Cumulative total returns since the end of 2016

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