The pharmaceutical sector is expected to grow rapidly in the coming years, owing to rising worldwide medical needs. Moreover, considering the defensive nature of this sector, it could be wise for investors to buy fundamentally sound pharma stock AbbVie Inc. (ABBV) now. However, I think it would be wise to wait for a better entry point in Pfizer Inc. (PFE) for the reasons discussed.
The global pharmaceutical market is expected to reach $1.48 trillion by 2028, growing at a 5.8% CAGR. Moreover, it is expected to generate $1.12 trillion in revenue in 2023. Oncology drugs is the industry's largest segment, with expected market volume of $188.20 billion in 2023.
Furthermore, the industry is evolving with the growing adoption of advanced technologies. According to Vantage Market Research, the global artificial intelligence in drug discovery market is expected to grow at a CAGR of 23.7% until 2030.
This growth can be attributed to the increasing adoption of AI technologies in the pharmaceutical industry to expedite the drug discovery process. AI offers capabilities such as predictive modeling, data analysis, and virtual screening, which enhance efficiency and accuracy in identifying potential drug candidates.
Investors’ interest in pharma stocks is evident from VanEck Vectors Pharmaceutical ETF’s (PPH) 6% returns over the past year.
Let’s delve into the fundamentals of the featured stocks.
Stock to Buy:
AbbVie Inc. (ABBV)
ABBV is a global biopharmaceutical firm focused on research, development, manufacturing, and the sale of pharmaceuticals. Some of the products in its portfolio are HUMIRA, SKYRIZI, and RINVOQ.
ABBV’s forward EV/EBITDA multiple of 1.53 is 7.2% lower than the industry average of 12.42. Its forward EV/EBIT multiple of 11.90% is 26.5% lower than the industry average of 16.20.
ABBV’s trailing-12-month levered FCF margin of 43.65% is significantly higher than the industry average of 0.04%, while its trailing-12-month EBIT margin of 34.85% is significantly higher than the industry average of 0.38%.
ABBV’s net revenues came in at $13.93 billion for the fiscal third quarter that ended September 30, 2023. Its operating earnings increased reached $2.28 billion. Also, its non-GAAP net earnings and EPS amounted to $5.25 billion and $2.95.
Also, its total current assets came in at $33.22 billion for the period that ended September 30, 2023, compared to $28.46 billion for the period that ended December 31, 2022. Its Long-term debt and finance lease obligations came in at $55.63 billion, compared to $59.14 billion for the same period.
The company’s revenue and EPS are expected to reach $53.90 billion and $11.18 for the fiscal year 2023. Shares of ABBV has gained marginally intraday to close the last trading session at $142.16.
ABBV’s POWR Ratings reflect this promising outlook. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
ABBV also has an A grade for Quality and a B for Value, Stability and Sentiment. It is ranked first among the 152 stocks in the Medical - Pharmaceuticals industry. Click here for the additional POWR Ratings for Growth and Momentum for ABBV.
Stock to Hold:
Pfizer Inc. (PFE)
PFE discovers, develops, manufactures, markets, distributes, and sells biopharmaceutical products worldwide. It offers medicines and vaccines in various therapeutic areas, infectious diseases, COVID-19 prevention and treatment, etc.
PFE’s forward Price/Sales multiple of 2.97 is 16% lower than the industry average of 3.54. However, its forward EV/EBIT multiple of 23.06% is 42.4% higher than the industry average of 16.20.
PFE’s trailing-12-month CAPEX / Sales of 5.68% is 25.6% higher than the industry average of 4.53%, while its trailing-12-month asset turnover ratio of 0.38x is 2.6% lower than the industry average of 0.39x.
PFE’s revenues declined 41.5% year-over-year to $13.23 billion for the fiscal third quarter that ended September 30, 2023. The company’s adjusted income and EPS decreased 85.9% and 90.4% year-over-year to $968 million and $0.17, respectively.
Street expects PFE’s revenue and EPS to come at $59.42 billion and $1.56 for the fiscal year ending December 2023. The stock has lost 33.6% over the past years to close the last trading session at $31.25.
The stock has an overall C rating, translating to a Neutral in our POWR Ratings system.
PFE is ranked #73 in the same industry. It has a C grade for Stability, Sentiment and Quality. Beyond what is stated above, we’ve also rated PFE for Growth, Momentum and Value. Get all PFE ratings here.
What To Do Next?
Discover 10 widely held stocks that our proprietary model shows have tremendous downside potential. Please make sure none of these “death trap” stocks are lurking in your portfolio:
ABBV shares were trading at $143.00 per share on Wednesday morning, up $0.84 (+0.59%). Year-to-date, ABBV has declined -7.94%, versus a 15.51% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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