Pick either Johnson & Johnson stocks or this healthcare company – both are likely to offer similar returns

We believe healthcare companies Abbott stock (NYSE:ABT) and Johnson & Johnson Stocks (NYSE: JNJ) are likely to offer similar returns over the next three years. Although ABT trades at a comparatively lower valuation of 4.0x, earnings down from 4.5x for J&J, this discrepancy in valuation is justified given J&J’s superior profitability and greater financial risk. low, as shown below.

If we look at stock returns, Abbott, with returns of -24% this year, underperformed the -3% return for J&J stocks and -16% for the broader S&P 500 Index. There’s more to the comparison, and in the sections below we discuss possible stock returns for ABT and JNJ over the next three years. We compare a host of factors such as historical revenue growth, returns and valuation multiple in an interactive dashboard analysis of Abbott versus Johnson & Johnson: Which stock is a better bet? Parts of the analysis are summarized below.

1. Abbott’s revenue growth is better

  • Abbott’s revenue growth of 13.2% over the last twelve months is greater than 7.2% for J&J.
  • Although we are looking at a longer period, Abbott’s sales growth has been better. It grew at an average annual growth rate of 12.4% to $43.1 billion in 2021 from $30.6 billion in 2018, while J&J’s has seen revenue grow at an average annual rate of barely 4.9% to $93.8 billion in 2021, from $81.6 billion in 2018.
  • While J&J’s medical device business faced headwinds in 2020 due to the impact of the pandemic, it rebounded in 2021.
  • The pharmaceutical segment recorded a 14% increase in sales in 2021, and the sales of the medical device segment increased by 18%. The strong performance of both segments should continue.
  • The company’s pharmaceuticals business is experiencing strong growth driven by market share gains for its cancer drugs, Imbruvica and Darzalex, and immunology drugs, Stelara and Tremfya.
  • Abbott’s sales growth in recent years has been driven by very strong demand for Covid-19 tests. However, with the drop in Covid-19 cases, demand for tests is also falling, weighing on Abbott’s diagnostics business.
  • That said, the company’s established medical device and pharmaceutical sales are likely to see steady growth over the next few years.
  • Our Johnson & Johnson revenue and Abbott revenue dashboards provide more information about business sales.
  • Going forward, Abbott’s revenue is expected to grow faster than J&J’s over the next three years. The table below summarizes our revenue forecasts for both companies over the next three years. It indicates a CAGR of 4.1% for Abbott, compared to a 3.6% CAGR for J&J, based on Trefis Machine Learning analysis.
  • Note that we have different methodologies for businesses that are negatively impacted by Covid and those that are not impacted or positively impacted by Covid while forecasting future revenue. For businesses negatively impacted by Covid, we consider the quarterly revenue recovery trajectory to forecast recovery at 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 with positive revenue growth during Covid, we consider the average annual growth before Covid with some growth weight during Covid and the last twelve months.


2. J&J and Abbott have similar margins

  • J&J’s operating margin of 23.9% over the last twelve months is in line with 23.6% for Abbott.
  • It compares with 24.1% and 16.1% figures seen in 2019, before the pandemic, respectively.
  • J&J’s free cash flow margin of 24.4% is better than 22.5% for Abbott.
  • Our Johnson & Johnson operating profit and Abbott operating profit dashboards have more detail.
  • When it comes to financial risk, the two seem comparable. J&J’s 15.6% debt as a percentage of equity is greater than 8.9% for Abbott, while his 13.3% cash as a percentage of assets is greater than 12.5% for the latter, implying that Abbott has a better leverage position and J&J has more cash cushion.

3. Filet of Everything

  • We see that Abbott has demonstrated better revenue growth, has a better debt position and is available at a comparatively lower valuation. On the other hand, J&J is slightly more profitable and has a larger cash cushion.
  • Now, looking at the outlook, using P/S as a base, due to the large swings in P/E and P/EBIT, we believe Abbott and J&J are likely to deliver similar returns over the three coming years.
  • The table below summarizes our revenue and return forecasts for both companies over the next three years and indicates an expected return of 14% for Abbott over this period and a ten% expected return for J&J, implying that investors can choose one of the two for similar returns, based on Trefis Machine Learning analysis – Abbott versus Johnson & Johnson – which also provides more detail on how we arrive at these numbers.


Although JNJ and ABT stocks seem likely to offer similar returns, it is useful to see how Johnson & Johnson peers price on the measures that matter. You will find other useful comparisons for companies in all sectors on Peer comparisons.

In addition, the Covid-19 crisis has created many price discontinuities which can offer attractive business opportunities. For example, you’ll be surprised how counter-intuitive stock valuation is to Amedisys versus Amerco.

With higher inflation and the Fed raising interest rates, JNJ has seen a 3% drop this year. Can it still go down? See how low Johnson & Johnson stock can go by comparing its drop in past stock market crashes. Here is a summary of how all stocks performed during previous stock market crashes.

What if you were looking for a more balanced portfolio instead? Our quality portfolio and multi-strategy portfolio have consistently beaten the market since late 2016.

Return Sep 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
Back ABT 4% -24% 179%
Back JNJ 3% -3% 44%
S&P 500 return 1% -16% 79%
Trefis Multi-Strategy Portfolio 2% -14% 241%

[1] Cumulative monthly and cumulative annual as of 09/09/2022
[2] Cumulative total returns since the end of 2016

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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