Which Is A Better Pick – Abbott Stock Or Amgen?

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Given its better prospects, we believe Abbott stock (NYSE: ABT) is a better healthcare pick than Amgen stock (NASDAQ
NDAQ
: AMGN). Both stocks have a similar market capitalization of $150 billion to $160 billion. AMGN trades at a higher valuation multiple of 5.7x revenues vs. 3.9x for ABT due to its superior profitability. There is more to the comparison, and in the sections below, we discuss why we believe ABT will offer better returns than AMGN 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 Abbott vs. Amgen
AMGN
: Which Stock Is A Better Bet? Parts of the analysis are summarized below.

ABT stock has seen a decline of 20% from levels of $110 in early January 2021 to around $90 now, vs. an increase of about 15% for the S&P 500 over this roughly 3-year period. However, the decrease in ABT stock has been far from consistent. Returns for the stock were 29% in 2021, -22% in 2022, and -18% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 13% in 2023 – indicating an underperformance for the ticker in 2022 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 healthcare sector, including LLY, UNH, and JNJ, and even for the mega-cap stars GOOG, TSLA, and MSFT.

In contrast, the Trefis High Quality 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.

Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could ABT face a similar situation as it did in 2022 and 2023 and lose value over the next 12 months – or will it see a recovery?

1. Abbott’s Revenue Growth Is Better

  • Abbott’s revenue growth has been better, with an 11% average annual growth rate in the last three years, compared to 4% for Amgen.
  • A high demand for Covid-19 testing drove Abbott’s sales growth in recent years.
  • Amgen’s expansion of some of its drugs, including Prolia, Otezla, Tezspire, and Repatha, is driving its revenue growth, while some of the older drugs, such as Enbrel and Neulasta, are seeing a y-o-y decline in sales.
  • If we look at the last twelve-month period, Amgen fares better with sales growth of 1% vs. -12% for Abbott.
  • With the worst of Covid-19 behind us, the demand for testing has been declining, weighing on Abbott’s diagnostics business in recent quarters.
  • Our Abbott Revenue Comparison and Amgen Revenue Comparison dashboards provide more insight into the companies’ sales.
  • Looking forward, Abbott’s revenue is expected to grow faster than Amgen’s over the next three years.
  • Abbott will see a dip in sales in 2023 owing to its diagnostics business. For perspective, Abbott expects total Covid-19-related sales of $1.3 billion in 2023, compared to $8.4 billion last year. However, it should return to growth next year, and its other businesses, including Medical Devices and Established Pharmaceuticals, should continue to grow steadily. Amgen will likely see a balance with new drugs more than offsetting the decline in sales of its relatively older drugs.
  • However, Amgen announced last week that it completed the acquisition of Horizon Therapeutics, giving Amgen access to Tepezza – a thyroid eye disease treatment with potential peak sales of over $4 billion.
  • Abbott’s revenue is expected to grow at a 3% CAGR to $44 billion in the next three years. In comparison, Amgen’s revenue will likely rise at a CAGR of 2% to $28 billion, based on Trefis Machine Learning analysis.

2. Amgen Is More Profitable

  • Abbott’s operating margin has risen from 16% in 2019 to 20% in 2022, while Amgen’s operating margin has contracted from 45% to 33% over this period.
  • Looking at the last twelve-month period, Amgen’s operating margin of 36% fares better than 15% for Abbott.
  • Our Abbott Operating Income Comparison and Amgen Operating Income Comparison dashboards have more details.
  • Looking at financial risk, both are comparable. Abbott’s 11% debt as a percentage of equity is lower than 40% for Amgen, but its 11% cash as a percentage of assets is lower than 38% for the latter, implying that Abbott has a better debt position and Amgen has more cash cushion.

3. The Net of It All

  • We see that Abbott has demonstrated better revenue growth and has a better debt position. On the other hand, Amgen 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 Abbott is the better choice of the two despite its higher valuation.
  • If we compare the current valuation multiples to the historical averages, Abbott fares much better, with its stock currently trading at 3.9x revenues vs. the last five-year average of 5.9x. In contrast, Amgen stock trades at 5.7x trailing revenues vs. the last five-year average of 5.1x.
  • Our Abbott Valuation Ratios Comparison and Amgen Valuation Ratios Comparison have more details.

While ABT may outperform AMGN over the next three years, it is helpful to see how Abbott’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

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