In this article, I evaluated two pharma stocks, Pfizer Inc. (PFE) and Johnson & Johnson (JNJ), to asses which have higher growth potential. After thoroughly evaluating these stocks, I think JNJ might be the superior choice for the reasons discussed in this article.
The pharmaceutical market has experienced significant growth in recent years, driven by factors such as an aging global population, increasing prevalence of chronic diseases, advancements in medical technology, and rising healthcare awareness and expenditure. Global pharmaceutical market revenue is expected to grow at a 6.4% CAGR until 2032.
Furthermore, according to Statista, revenue in the pharmaceuticals market is expected to total $1.16 billion in 2024. In global comparison, the majority of the revenue will be generated in the U.S. (about $636.90 billion this year). Furthermore, revenue is projected to grow at a CAGR of 6.2% from 2024 to 2028, attaining a market volume of $1.47 trillion by 2028.
PFE declined 7.2% over the past three months compared to JNJ’s 4.3% gain. The stock has declined 25.4% over the past nine months compared to JNJ’s 1.8% decline.
Therefore, here are the reasons why I think JNJ might perform better in the near term:
Recent Developments
On February 19, 2024, PFE announced that the European Commission (EC) had granted marketing authorization for VELSIPITY (etrasimod) in the European Union to treat patients 16 years of age and older with moderately to severely active ulcerative colitis (UC) who have had an inadequate response, lost response, or were intolerant to either conventional therapy, or a biological agent.
Conversely, on January 8, 2024, JNJ announced it had entered into a definitive agreement to acquire Ambrx Biopharma, Inc. (AMAM), a clinical-stage biopharmaceutical company with a proprietary synthetic biology technology platform to design and develop next-generation antibody drug conjugates (ADCs), in an all-cash merger transaction for a total equity value of approximately $2.0 billion, or $1.9 billion net of estimated cash acquired.
Recent Financial Results
PFE’s total revenues for the fiscal fourth quarter, which ended December 31, 2023, declined 41% year-over-year to $14.25 billion. Its loss from continuing operations came in at $3.34 billion. The company’s adjusted net income came in at $593 million, representing a decline of 91% year-over-year. Also, its adjusted EPS declined 91% year-over-year to $0.10.
On the contrary, JNJ’s sales increased 7.3% year-over-year to $21.39 billion for the fourth quarter that ended December 31, 2023. The company’s gross profit grew 5.4% from the year-ago value to $14.60 billion. Its adjusted net earnings and adjusted EPS were $5.56 billion and $2.29, up 2.4% and 11.7% from the prior year’s quarter, respectively.
Past And Expected Financial Performance
Over the past three years, PFE’s revenue increased at a 12% CAGR. Analysts expect PFE’s revenue to increase by 2.6% in the year ending December 2024 and 4% in the second quarter ending June 2024. Its EPS is expected to increase 20.9% in the year ending December 2024.
Conversely, JNJ’s revenue has increased at a CAGR of 1% over the past three years. Its revenue is expected to increase 3.9% in the fiscal year ending December 2024. Its EPS is expected to increase 7.6% in the year ending December 2024.
Valuation
PFE’s forward EV/Sales multiple of 2.94 is lower than JNJ’s 4.35. PFE’s forward EV/EBITDA multiple of 8.78x is lower than JNJ’s 12.07x.
Profitability
PFE’s trailing-12-month levered FCF margin of 8.29% is lower than JNJ’s 23.23%. In addition, PFE’s trailing-12-month asset turnover ratio of 0.33x is lower than JNJ’s 0.48x.
POWR Ratings
PFE has an overall rating of C, which equates to a Neutral in our proprietary POWR Ratings system. Conversely, JNJ has an overall rating of A, translating to Strong Buy. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. PFE has a C grade for Stability, which is justified by its 24-month beta of 0.56. On the other hand, JNJ has a B grade for Stability, which is in sync with its 24-month beta of 0.32.
Among the 161 stocks in the in the Medical - Pharmaceuticals industry, PFE is ranked #57, while JNJ is ranked #7.
Beyond what we’ve stated above, we have also rated both stocks for Growth, Momentum, Quality, Value, and Sentiment. Get all PFE ratings here. Click here to view JNJ ratings.
The Winner
The pharmaceutical industry is expected to continue evolving as it adapts to new technologies, regulatory changes, and the ongoing demand for innovative healthcare solutions. Industry players such as PFE and JNJ are well-positioned to benefit from these industry tailwinds.
However, PFE’s higher beta value makes its competitor JNJ the better buy here.
Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Medical - Pharmaceuticals industry here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
JNJ shares were trading at $156.55 per share on Monday afternoon, down $0.18 (-0.11%). Year-to-date, JNJ has gained 0.64%, versus a 5.09% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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