This Pharmaceuticals Company Looks To Be A Better Pick Over Procter & Gamble Stock

We believe that pharmaceutical giant AbbVie stock  (NYSE: ABBV) is a better pick than the consumer-defensive Procter & Gamble stock (NYSE: PG). Although these companies are from different sectors, we compare them because they trade at a similar valuation of over 4x trailing revenues. The decision to invest often comes down to finding the best stocks within the parameters of certain characteristics that suit an investment style. The size of profits can matter, as larger profits can imply greater market power. Since these stocks are from different sectors, comparing P/S may not be helpful. We compare the current multiples with the historical ones in the sections below.

If we look at stock returns, ABBV stock has fared better, with a 5% rise in the last twelve months, compared to an 8% decline for PG and a 6% decline for the broader S&P500 index. There is more to the comparison, and in the sections below, we discuss the possible returns for P&G and 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 of Procter & Gamble vs. AbbVie: Which Stock Is A Better Bet? Parts of the analysis are summarized below.

1. AbbVie’s Revenue Growth Is Better

• Both companies posted sales growth over the last twelve months. Still, P&G’s revenue growth of 4.3% is slightly higher than 3.3% for AbbVie.
• However, if we look at a longer time frame, AbbVie fares better, with its sales rising at an average annual growth rate of 21.2% to $58.1 billion in the last twelve months, compared to $33.3 billion in 2019, while P&G saw its sales grow at an average rate of 5.8% to $80.5 billion in the last twelve months, vs. $67.7 billion in 2019.
• P&G’s largest segment is Fabric & Home Care, contributing around 35% of the company’s revenues. It has also seen a steady rise in sales over recent years. In fiscal 2022, the company reported a 5% rise in total sales, driven by a 2% growth in unit volume.
• However, in its latest quarter, P&G reported a 1% decline in reported sales, primarily due to forex headwinds. Organic sales grew 5%, driven by better price realization, but shipment volume declined. Given the challenging environment of high inflation, rising interest rates, strengthening U.S. dollar, and the economy feared to go into recession, P&G’s sales will likely be adversely impacted in 2023.
• 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 garnered a whopping $21.2 billion in 2022 sales, reflecting a 3% y-o-y growth. Now, Humira’s biosimilar has already hit the European markets, weighing on the company’s international sales (down 22% y-o-y in 2022). The biosimilars are expected to enter the U.S. this year, likely resulting in a significant drop in Humira sales over the coming years.
• That said, Humira is prepared to combat this biosimilar impact with its Allergan acquisition in 2020, giving it access to Botox, a multi-billion dollar product. Furthermore, its relatively new drugs – Skyrizi and Rinvoq – used to treat plaque psoriasis and rheumatoid arthritis, are gaining market share. For perspective, these three products garnered $13.0 billion in 2022, reflecting about 40% y-o-y growth.
• Still, Humira’s decline in sales will outweigh the rise in sales of other drugs in the near term. While AbbVie’s sales are expected to fall in 2023, in one of its recent SEC filings, the company stated that it will absorb the loss of exclusivity for Humira in the U.S. and return to strong sales growth in 2025.
• Our Procter & Gamble Revenue Comparison and AbbVie Revenue Comparison dashboards provide more insight into the companies’ sales.
• Looking forward, both companies are expected to see revenue decline in 2023 and a likely rebound in sales after that. AbbVie, in particular, may see its sales bounce strongly with continued market share gains for some of its new drugs. The table below summarizes our revenue expectations for the two companies over the next three years. It points to a CAGR of 2% for P&G, compared to 8% for AbbVie, based on Trefis Machine Learning analysis.
• Note that we have different methodologies for companies that are negatively impacted by Covid and those that are not impacted or positively impacted by Covid while forecasting future revenues. For companies negatively affected by Covid, we consider the quarterly revenue recovery trajectory to forecast recovery to the pre-Covid revenue run rate. Beyond the recovery point, we apply the average annual growth observed three years before Covid to simulate a return to normal conditions. For companies registering positive revenue growth during Covid, we consider yearly average growth before Covid with a certain weight to growth during Covid and the last twelve months.

2. AbbVie Is More Profitable

• AbbVie’s operating margin of 31.2% over the last twelve months is better than 22.5% for P&G.
• This compares with 39.0% and 8.9% figures in 2019, before the pandemic, respectively.
• If we look at the recent margin growth, AbbVie has fared better, with the last twelve months vs. last three-year margin change at 1.9%, compared to a -0.7% change for P&G.
• AbbVie’s free cash flow margin of 43% is also higher than the 20% for P&G.
• Our Procter & Gamble Operating Income Comparison and AbbVie Operating Income Comparison dashboards have more details.
• Looking at financial risk, both are comparable. While P&G’s 10% debt as a percentage of equity is lower than 23% for AbbVie, its 6% cash as a percentage of assets is also marginally lower than 7% for the latter, implying that P&G has a better debt position, but AbbVie has more cash cushion.

3. The Net of It All

• We see that P&G has demonstrated better revenue growth over the recent quarters and has a better debt position. On the other hand, AbbVie has seen better revenue growth over the recent years, is more profitable, and has more cash cushion.
• Now, looking at prospects, using P/S as a base, due to high fluctuations in P/E and P/EBIT, we believe AbbVie is the better choice of the two.
• If we compare the current valuation to the historical average, AbbVie fares better, with its stock currently trading at 4.6x trailing revenues vs. the last five-year average of 5.3x. In contrast, P&G’s stock trades at 4.2x trailing revenues vs. the last five-year average of 4.3x. Our Procter & Gamble (PG) Valuation Ratios Comparison and AbbVie (ABBV) Valuation Ratios Comparison have more details.
• The table below summarizes our revenue and return expectation for both companies over the next three years and points to an expected return of 27% for AbbVie over this period vs. a 0% expected return for P&G stock, based on Trefis Machine Learning analysis – Procter & Gamble vs. AbbVie – which also provides more details on how we arrive at these numbers.

While ABBV stock may outperform PG stock in the next three years, it is helpful to see how Procter & Gamble’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

Furthermore, the Covid-19 crisis has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised at how counter-intuitive the stock valuation is for Citrix Systems vs. Procter & Gamble.

With higher inflation and the Fed raising interest rates, among other factors, PG stock has fallen 8% in the last twelve months. Can it drop more? See how low Procter & Gamble stock can go by comparing its decline in previous market crashes. Here is a performance summary of all stocks in previous market crashes.

What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

[1] Month-to-date and year-to-date as of 2/23/2023
[2] Cumulative total returns since the end of 2016

Invest with Trefis Market Beating Portfolios
See all Trefis Price Estimates