Author: Trefis Team

JCI – What’s Next For Johnson Controls Stock After An Upbeat Q2?

Written by Trefis Team on . Posted in JCI, Stock Report.

Johnson Controls stock (NYSE: JCI) is up 12% in a month, outperforming the broader markets, with the S&P500 up just 0.2%. The company posted upbeat Q2 results last week, and despite its recent rise, we think it has more room for growth, as discussed below.

Johnson Controls’ revenues were up 10% to $6.7 billion in fiscal Q2’23 (fiscal ends in September), compared to our forecast of $6.6 billion. This growth was driven by a 13% rise in North America sales and an 8% rise in Global Products segment sales. This can be attributed to better price realization and strong demand trends for its commercial HVAC and fire and safety products.

The company’s adjusted EBIT margins improved by 70 bps to 10.7%. Its GAAP operating margin rose 160 bps to 9.9% in Q2’23. The earnings of $0.75 on a per share and adjusted basis were up 19% from $0.63 in the prior-year quarter, and this compares with our estimate of $0.74. The rise in earnings can be attributed to higher sales and improved operating margins.

Not only did JCI post upbeat Q2 results, but it also slightly raised its full-year outlook. It now expects its organic sales to rise 10% for the full-fiscal 2023, compared to its prior guidance of high single-digit to low double digits growth. It also narrowed its earnings outlook to be between $3.50 and $3.60 on a per-share and adjusted basis, vs. its prior view of $3.30 to $3.60. This can be attributed to a robust demand environment for HVAC products and a healthy margin expansion seen in recent quarters. This boded well with investors, as evident from the stock price appreciation.

Looking at the stock price, we estimate Johnson Controls Valuation to be $71 per share, about 13% above the current market price of $63. At its current levels, JCI stock is trading at a little under 18x its expected forward earnings of $3.57 on a per share and adjusted basis for full-fiscal 2023, compared to the last five-year average of 20x, implying that it has some room for growth.

While JCI stock looks like it can see higher levels, it is helpful to see how Johnson Controls’ 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 Vicor vs. ACM Research.

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.

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AAPL – How Will Apple’s Earnings Trend As IDevice Sales Slow

Written by Trefis Team on . Posted in AAPL, Stock Report.

Apple is slated to report its Q2 FY’23 results on May 4, reporting on a quarter that likely saw the company’s sales contract amid weaker demand for computing devices and headwinds in the digital services business. We estimate that Apple’s revenue will come in at about $93 billion for the quarter, roughly in line with consensus estimates and about 4% lower compared to last year. We estimate that earnings will stand at close to $1.45 per share, compared to a consensus of $1.43 per share. So what are some of the trends that are likely to drive Apple’s results? See our interactive dashboard analysis on Apple Earnings Preview for more details on how Apple’s revenues and earnings are likely to trend for the quarter.

We expect to see slower sales of iPhones, amid economic concerns and weaker consumer spending. However, this could be partially offset by improved availability of the flagship iPhone Pro devices, which remained undersupplied through the holiday quarter. Apple’s other computing devices are also likely to see slower sales. While the iPad could see demand cool versus last year, as the remote working and learning trend seen through the Covid-19 pandemic tapers off. Mac sales are expected to see a more severe slump. For perspective, IDC estimates that Apple’s Mac sales declined by close to 40.5% in Q1 2023. However, this could be offset, in part, by sales of pricier devices such as the Macbook Pros and the all-new Macbook Air.

We will be closely watching the performance of Apple’s services business. Services sales have slowed down meaningfully, with revenue growing by just 6.4% in Q1 FY’23 and by about 5% in Q4 FY’22, compared to double-digit levels in the year-ago quarter. This is concerning, given that services are very lucrative, with segment gross margins typically standing at over 70%. The decline is likely being led by the AppStore, with people spending less on gaming and apps as Covid-19 eases.

So is Apple stock a buy ahead of earnings? While Apple stock could move slightly higher if it beats earnings, we believe the stock is fundamentally overvalued at current levels of about $170 per share. The stock trades at about 28x forward earnings, which we believe is high, given that Apple’s earnings are poised to contract this year per consensus estimates, with revenue growth projected to remain slow over the next year as well. We value Apple at about $160 per share, about 5% below the market price. See our analysis of Apple Valuation for more details on what’s driving our price estimate for Apple and how it compares with peers.

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MSI – Will Motorola Solutions Q1 Earnings Benefit From Easing Component Prices?

Written by Trefis Team on . Posted in MSI, Stock Report.

Motorola Solutions Inc. (NYSE: MSI) – one of the largest suppliers of land-mobile-radio solutions – is expected to report its Q1 2023 results on May 4. We expect the company’s revenues for the quarter to stand at about $2.15 billion, slightly ahead of consensus estimates, marking a roughly 13% growth versus last year. We expect that earnings will come in at about $2.10 per share, ahead of the $2.05 consensus estimates. See our analysis of Motorola Solutions Earnings Preview for a closer look at what to expect when the company publishes earnings.

Despite concerns about an economic slowdown, demand for Motorola Solutions
MSI
 products has been strong. Over Q4 2022, the most recently reported quarter, MSI’s revenues rose 17% year-over-year to $2.7 billion, driven primarily by stronger land mobile radio and video security and access control sales. Although Motorola is likely to see sales growth cool a bit over Q1, the company should see demand from customers upgrading from its previous generation of land mobile radios to newer models. The company has also indicated that margins should look up in 2023, as supply chain-related headwinds seen through 2022 ease with component price inflation also potentially cooling. Although we might not see the full impact of this in Q1, we could see a more meaningful improvement through the rest of this year.

So is MSI stock still a buy at current levels of around $293 per share? MSI stock currently trades at about 26x forward earnings which we believe is a relatively premium valuation, despite MSI’s strong cash flows, customer lock-in, and the general resilience of its business. We value MSI stock at about $284 per share, which is slightly below the current market price. See our analysis Motorola Valuation: Is MSI Stock Expensive Or Cheap? for more details.

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GM – What To Expect From GM’s Q1 Earnings?

Written by Trefis Team on . Posted in GM, Stock Report.

General Motors (NYSE:GM) is expected to publish its Q1 2023 results on April 25 reporting on a quarter that saw the company’s U.S. deliveries see strong gains. We expect revenue for the quarter to come in at about $39.2 billion, slightly ahead of consensus estimates and up about 8% versus last year. We expect earnings to stand at about $1.72 per share, roughly in line with consensus estimates. See our analysis of GM Earnings Preview for a closer look at what to expect from GM stock for the quarter.

Although the macro picture is looking a bit more challenging for the automotive industry, due to rising interest rates, stricter credit standards, and concerns about the U.S. economy and consumer spending, GM’s delivery performance over Q1 was solid. U.S. volumes rose by almost 18% from a year ago, to over 600,000 vehicles as semiconductor supply improved and supply chain issues eased, while sales to fleet operators picked up considerably. The company delivered about 20,000 electric vehicles over the quarter and indicated that it was on track to sell about 50,000 EVs over the first half of this year. The company’s full-size pickups such as the Silverado and GMC Sierra continue to sell well, with combined sales rising by 9% year-over-year, outpacing rival Ford and its F-Series trucks. GM’s margins for the quarter could potentially be helped by stronger volume, rising market share, and cooling inflation.

GM stock has underperformed a bit this year, remaining roughly flat compared to the S&P 500 which remains up by about 8%. However, we think the stock is a good value at current levels of about $39 per share. GM trades at just under 6x the upper end of its projected 2023 adjusted earnings. GM also appears very optimistic about its long-term prospects, noting that it intends to double revenue to between $275 billion and $315 billion by 2030, driven in part by growth in EVs, software, and self-driving technology. The company also intends to expand margins to between 12% to 14%. GM is guiding for adjusted earnings per share of between $6 and $7 for 2023, with automotive free cash flow projected at between $5 billion to $7 billion, and it’s possible that this could be revised upward during the company’s Q1 earnings call. We remain bullish on GM stock with a $49 price estimate, which is considerably ahead of the current market price. See our analysis on General Motors Valuation: Expensive Or Cheap for more details on what’s driving our price estimate for GM. For more information on GM’s business model and revenue trends, check out our dashboard on General Motors Revenue: How GM Makes Money.

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MA – What To Expect From Mastercard Stock?

Written by Trefis Team on . Posted in MA, Stock Report.

Mastercard’s stock (NYSE: MA) has gained approximately 7% YTD as compared to the 8% rise in the S&P500 index over the same period. Further, at its current price of $373 per share, it is trading 13% below its fair value of $427 – Trefis’ estimate for Mastercard’s valuation. The company, a leading global payments solutions provider, outperformed the consensus estimates in the fourth quarter of 2022. It reported net revenues of $5.82 billion – up 12% y-o-y. The growth was driven by a 31% jump in the cross-border volume, followed by an 8% increase in the gross dollar volume and an 8% rise in the switched transactions. On the cost front, the operating expenses increased by 10% in the quarter. Overall, the firm reported a 6% y-o-y improvement in the net income to $2.5 billion.

The total revenues grew 18% y-o-y to $22.2 billion in FY2022. It was driven by a 45% jump in cross-border volumes, followed by a 12% rise in gross-dollar volume and the number of switched transactions. That said, the positive effect of revenue growth was partially offset by an unfavorable decrease in total other income from $225 million to -$532 million. All in all, the net income increased 14% y-o-y to $9.9 billion.

Moving forward, we expect the revenue to continue its growth trajectory in Q1 2023. Notably, the consensus estimates for Q1 revenues and earnings are $5.64 billion and $2.71 respectively. Altogether, Mastercard’s revenues are forecast to touch $25.2 billion in FY2023. Additionally, MA’s adjusted net income margin is expected to see some improvement in the year, leading to a net income of $11.5 billion. This coupled with an annual EPS of $12.04 and a P/E multiple of just above 35x will lead to a valuation of $427.

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DE – Should You Buy Deere Stock Over Its Industry Peer?

Written by Trefis Team on . Posted in DE, Stock Report.

We believe that Deere stock (NYSE: DE) will offer slightly better returns than its industry peer, Caterpillar stock (NYSE: CAT), given its better prospects. Both the stocks have similar market capitalization and revenue base, and both are trading at a similar valuation of around 2x trailing revenues. While Deere has seen superior revenue growth and profitability over the recent years, Caterpillar
CAT
 has a better financial position, as discussed below.

If we look at stock returns, Caterpillar, with -3% returns in the last twelve months, has fared better than the -12% return for Deere stock and -6% returns for the broader S&P 500 index. There is more to the comparison, and in the sections below, we discuss why we think DE stock can offer better returns than CAT stock 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 Deere vs. Caterpillar: Which Stock Is A Better Bet? Parts of the analysis are summarized below.

1. Deere’s Revenue Growth Is Better

  • Both companies posted double-digit sales growth over the last twelve months. Still, Deere’s revenue growth of 25% is slightly higher than 17% for Caterpillar.
  • Even if we look at a longer time frame, Deere fares better, with its revenue rising at an average annual growth rate of 11% to $53 billion in fiscal 2022, compared to $39 billion in fiscal 2019 (fiscal ends in October). In comparison, Caterpillar’s sales grew at an average annual rate of 5% to $59 billion in 2022, vs. $54 billion in 2019.
  • Deere is benefiting from higher demand for agriculture equipment, given the above-average age of farming equipment in the U.S.
  • The agricultural equipment demand has also been buoyed by rising farm income and better price realization.
  • If we look at Q1, 2023, sales were up a stellar 55% for Production & Precision Agriculture and 14% for Small Agriculture & Turf segment. The sales growth was driven by higher volume/mix and better price realization, a trend expected to continue in the near term.
  • A better pricing environment has driven Caterpillar’s revenue growth over the recent quarters.
  • Caterpillar is also benefiting from the rise in commodity prices. Higher commodity prices translate into higher capital spending for miners, bolstering Caterpillar’s mining equipment demand. In fact, the resource industries was the best-performing segment for Caterpillar in 2022 (up 23% y-o-y), led by a high end-user demand for heavy construction and mining equipment.
  • Our Deere Revenue Comparison and Caterpillar Revenue Comparison dashboards provide more insight into the companies’ sales.
  • Looking forward, Deere’s revenue is expected to grow faster than Caterpillar’s over the next three years. The table below summarizes our revenue expectations for the two companies over the next three years. It points to a CAGR of 11% for Deere, compared to a 9% CAGR for Caterpillar, 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. Deere Is More Profitable But Comes At Higher Risk

  • Deere’s operating margin of 23% over the last twelve-month period is higher than 13% for Caterpillar.
  • This compares with 15% and 18% figures seen in 2019, before the pandemic, respectively.
  • Caterpillar’s free cash flow margin of 13% is better than 11% for Deere.
  • Our Deere Operating Income Comparison and Caterpillar Operating Income Comparison dashboards have more details.
  • Looking at financial risk, Caterpillar fares better. Its 5% debt as a percentage of equity is much lower than 47% for Deere, while its 8% cash as a percentage of assets is higher than 5% for the latter, implying that CAT has a better debt position and more cash cushion, making it a comparatively less risky bet.

3. The Net of It All

  • We see that Deere has demonstrated better revenue growth in recent years and is more profitable. On the other hand, Caterpillar offers a lower financial risk.
  • Now, looking at prospects, using P/S as a base, due to high fluctuations in P/E and P/EBIT, we believe Deere will offer slightly better returns over Caterpillar in the next three years.
  • The table below summarizes our revenue and return expectations for both companies over the next three years and points to an expected return of 22% for Deere over this period and a 16% expected return for Caterpillar, implying that investors will likely be better off picking DE over CAT, based on Trefis Machine Learning analysis – Deere vs. Caterpillar – which also provides more details on how we arrive at these numbers.

While DE stock may outperform CAT stock in the next three years, it is helpful to see how Deere’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 Corning vs. Amerco.

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.

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VRSN – What’s Next For VeriSign Stock After A 20% Fall Since 2021?

Written by Trefis Team on . Posted in Stock Report, VRSN.

Despite an 8% fall since early February this year, VeriSign stock (NASDAQ
NDAQ
: VRSN) has little room for growth, in our view. VeriSign
VRSN
 stock has declined from $222 in early February to $204 now. This marks a slight underperformance with the -5% return for the broader S&P500 index. Looking at a slightly longer term, VRSN stock is down 20% from levels seen in late 2021. This can be attributed to 1. the company’s P/S ratio, which fell 27% to 15.6x trailing revenues from 21.4x in 2021, partly offset by 2. a 3% rise in VeriSign revenue to $1.4 billion, and 3. its average shares outstanding falling 6% to 105 million, led by $1.8 billion the company spent on share repurchases. Our interactive dashboard, Why VeriSign Stock Moved, has more details.

VeriSign operates a diverse array of network infrastructure and is a leading domain name provider. The company also offers a wide range of security services. It operates in only one reportable segment, and sales have been rising steadily and consistently every year over the past decade. The demand for domain names is on the rise with continued internet growth. VeriSign benefited from increased demand for domain names during the pandemic as more businesses expanded their presence online. Price increases have also bolstered the company’s top-line growth, and this trend is expected to continue in the near term.

Not only has VeriSign delivered consistent revenue growth, but its operating margin has also risen from 63.2% in 2018 to 66.2% in 2022. The company’s bottom line decreased 11% y-o-y to $6.24 in 2022 due to a tough comparison with 2021, which benefited from a one-time income tax benefit of $165 million from a transfer of intellectual property. For 2023, VeriSign expects its domain name base to rise between 0% and 2.5%. However, its sales are expected to be between $1.485 and $1.505 billion, reflecting a 5% y-o-y rise at the mid-point of its guided range.

Looking at valuation, we find that VRSN stock has little room for growth. At its current level of $204, it is trading at 16x its TTM revenues, compared to the last three-year average of about 18x. Our VeriSign Valuation Ratios Comparison has more details. We estimate VeriSign’s Valuation to be $228 per share, about 12% above the current market price, and represents an 18x P/S multiple based on TTM revenues and aligning with its historical average.

While VRSN stock looks like it has little room for growth, it is helpful to see how VeriSign’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 F5 vs. Target
TGT
.

With inflation rising and the Fed raising interest rates, among other factors, VRSN stock has fallen 7% in the last twelve months. Can it drop more? See how low VeriSign 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.

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HIG – Is Hartford Financial Stock Fairly Priced?

Written by Trefis Team on . Posted in HIG, Stock Report.

Hartford Financial’s stock (NYSE: HIG) has lost approximately 13% YTD as compared to the 3% rise in the S&P500 index over the same period. Further, at its current price of $66 per share, it has an upside potential of 32% to its fair value of $87 – Trefis’ estimate for Hartford Financial’s valuation. The property & casualty (P&C) insurance giant posted better-than-expected results in the fourth quarter of 2022, with revenues increasing by 3% y-o-y to $6.02 billion. It was mainly due to an 8% rise in earned premiums and a 12% increase in net investment income. The earned premiums figure benefited from growth in the property & casualty (P&C) commercial lines and group benefits insurance segments. Similarly, the NII improved due to higher yield on variable rate securities and reinvesting at higher rates. On the cost front, the benefits, losses & expenses as a % of revenues increased in the quarter, leading to a 19% y-o-y drop in the adjusted net income to $584 million.

The company’s top line marginally decreased to $22.36 billion in 2022. It was driven by lower net investment income, a drop in fee income, and a net realized loss of -$627 million (as compared to $509 million in 2021), which nullified the 8% y-o-y growth in the earned premiums. Further, total benefits, losses & expenses as a % of revenues increased in the year. This resulted in a 23% y-o-y reduction in the adjusted net income to $1.79 billion.

Moving forward, we expect the premiums to continue their growth trajectory over the subsequent quarters. Overall, Hartford Financial’s revenues are forecast to remain around $23.74 billion in FY2023. Additionally, HIG’s adjusted net income margin is likely to improve in the year, resulting in an adjusted net income of $2.41 billion and an annual GAAP EPS of $7.49. This coupled with a P/E multiple of just below 12x will lead to a valuation of $87.

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DISH – Is Dish Network Stock A Buy Despite Many Headwinds?

Written by Trefis Team on . Posted in DISH, Stock Report.

Dish Network stock (NASDAQ
NDAQ
: DISH) has declined by almost 35% year-to-date, falling to near 14-year lows. The sell-off is driven by several factors. Firstly, the company faced a cybersecurity attack on February 23, which impacted its internal communications, call centers as well as applications, and websites. Although we don’t have too many specific details on the attack, it apparently impacted the company’s customer onboarding, bill payments, and customer care operations for almost three weeks. This could potentially impact the company’s subscriber numbers and revenues over Q1 2023. Separately, Dish’s results for Q4 2022 were also mixed, with revenue falling short of estimates, declining by 9% versus the year-ago quarter, as the company lost another 268,000 net pay TV subscribers, although earnings were slightly ahead of estimates. Investors have also been treading cautiously with the stock in a rising interest rate environment, given the company’s high debt load (over $20 billion in debt) and its considerable capital requirements for building out its nationwide wireless business.

We are cutting our price estimate for Dish from about $21 per share to $14 per share, due to the current headwinds including rising rates and revenue pressures. However, our price estimate is still about 55% ahead of the current market price. See our analysis on Dish Network Valuation: Expensive Or Cheap for more details. There are still a couple of reasons to remain positive on Dish stock at current levels of about $9 per share. We think Dish’s valuation could be supported by its upside potential from its 5G wireless rollout. Moreover, Dish’s massive spectrum holdings should also provide a backstop for the stock. The company holds around 150 MHz of value sub-6 GHz frequency, compared to Verizon and AT&T
T
 which own around 290 MHz each, per UBS. Although regulations prevent existing wireless carriers from buying Dish’s spectrum assets before 2026, the spectrum is nevertheless very valuable given the growing demand for bandwidth, the higher spectrum intensity of 5G versus earlier technologies, and also considering the fact that airwaves are a scarce resource. Dish also trades at under 7x consensus 2023 earnings, which makes the risk-to-reward trade-off for the stock more acceptable.

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

Written by Trefis Team on . Posted in PG, Stock Report.

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
ABBV
 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
    AGN
     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 Valuation Ratios Comparison and AbbVie 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
PG
.

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.

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