Pick BMY Stock Over JNJ?

Given its better prospects, we believe that Bristol Myers Squibb stock (NYSE: BMY) is currently a better pharmaceutical pick over Johnson & Johnson stock (NYSE: JNJ). BMY stock trades at 8.3x its forward expected earnings (2025), versus 14.7x for JNJ. However, we think that this gap will narrow in favor of BMY, given the market share gains for its new drugs. There is more to the comparison, and in the sections below, we discuss why we think BMY will outperform JNJ in the next three years. We compare a slew of factors, such as historical revenue growth, returns, and valuation.

1. Both Stocks Have Underperformed The Broader Markets

BMY stock has seen little change, moving slightly from levels of $55 in early January 2021 to around $60 now, vs. an increase of about 10% for JNJ from levels of $140 to $155 over this period. In comparison, the S&P 500 index has risen 60% over this roughly four-year period.

Overall, 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 JNJ were 11%, 6%, and -9%, respectively. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 — indicating that both BMY and JNJ underperformed the S&P in 2021 and 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 PFE, MRK, 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. J&J’s Revenue Growth Is Better

J&J has seen its revenue rise 11.4% from $78.7 billion in 2021 to $87.7 billion over the last twelve months. On the other hand, BMS’s sales have risen by 2.3% from $46.4 billion to $47.4 billion over this period.

Bristol Myers Squibb’s revenue growth has been weighed down, given the decline in sales of some of its legacy drugs, including Revlimid. On the flip side, its anticoagulant Eliquis has been doing well, with sales of over $12 billion last year. Eliquis sales are expected to rise for the next couple of years, post which it will face biosimilar competition. However, BMS’s new cardiovascular drug Camzyos is expected to bridge the gap from the expected decline in Eliquis sales.

The company’s 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. BMS has strengthened its pipeline with these acquisitions, and it now has over 50 compounds in development. BMS has recently secured the U.S. FDA approval for its schizophrenia drug – Cobenfy – which was under Karuna Therapeutics. BMS is looking at potential peak sales of over $7 billion from this drug alone.

Johnson & Johnson’s revenue growth is being led by higher sales for both of its segments – pharmaceuticals and medical devices. J&J’s multiple myeloma treatment – Darzalex – and the autoimmune drug – Stelara – have been the key growth drivers for the company’s pharmaceuticals business in the recent past. Some of the company’s new drugs, including Carvykti – a multiple myeloma treatment, and Spravato – an antidepressant – have been gaining market share.

On the flip side, though, J&J also has some relatively older drugs that face generic competition and have seen their sales fall. For example, Remicade sales have declined by 48% between 2021 and 2023. Also, growth in the sale of pharmaceuticals will be weighed down in the coming years due to the loss of the U.S. market exclusivity for Stelara in 2025. Stelara is one of the top-selling drugs for J&J, with sales of $11 billion in 2023. Stelara sales were down 7% y-o-y in Q3’24, and we expect the decline to be more profound from next year. Beyond pharmaceuticals, J&J’s medical devices business has been doing well — especially Cardiovascular Care, which has benefited from the Abiomed acquisition (J&J acquired Abiomed in 2022).

3. J&J Is More Profitable

BMS’s operating margin has declined slightly from 18.4% in 2021 to 18.2% in 2023, while J&J’s operating margin has improved slightly from 26.6% to 27.5% over this period. Looking at the last twelve-month period, J&J’s operating margin of 26.1% fares much better than 15.3% for BMS.

BMS recorded a one-time charge of $12.1 billion for the acquisition of Karuna in Q1’24, and expects its full-year earnings to be much lower at $0.85 per share (at the mid-point of the provided range) than the $7.51 earnings per share it reported in 2023.

J&J’s margin decline over the recent quarters can partly be attributed to a one-time special charge and acquired IPR&D. It has cut its 2024 adjusted earnings outlook to $9.91 per share, versus $10.05 earlier, primarily due to the costs associated with the V-Wave acquisition. J&J reported adjusted earnings of $9.92 per share in 2023.

4. JNJ Stock Has A Better Financial Position

Looking at financial risk, J&J fares better, with its 10% debt as a percentage of equity lower than 43% for BMS. Furthermore, J&J’s 11% cash as a percentage of assets is higher than 9% for the latter, implying that J&J has a better debt position and more cash cushion.

5. The Net of It All

We see that J&J has demonstrated better revenue growth, is more profitable, and has a better financial position, which also explains the gap in valuation multiple between these stocks. But, looking at the prospects, we believe BMS is the better choice of the two.

BMY stock currently trades at 8x its forward expected earnings of $7.20 in 2025, compared to the stock’s average P/E ratio of 10x over the last five years. Not only is BMY stock trading at a valuation multiple below its historical average, it has a few positives, including Cobenfy approval, to look forward to. The overall growth portfolio is expected to more than offset the decline in sales for the company’s legacy portfolio.

JNJ stock currently trades at 15x its forward expected earnings of $9.95 per share (Trefis estimate), compared to the stock’s average P/E ratio of 17x over the last three years. We estimate Johnson & Johnson’s Valuation of $172 per share, reflecting over 10% upside from its current levels of $156, and reflecting a 17x P/E ratio. We don’t see any reason to expand the valuation multiple for JNJ stock, given the Stelara overhang.

While BMY stock looks like a better pick over JNJ in our view, it is helpful to see how Bristol Myers Squibb’s peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

[1] Returns as of 11/26/2024
[2] Cumulative total returns since the end of 2016

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