Down 10% This Year Is Coca-Cola Stock A Better Pick Over AbbVie?

Given its better prospects, we think Coca-Cola shares (NYSE:KO) is a better choice than AbbVie shares (NYSE:ABBV). Although these companies are in different industries, we compare them because they have a similar market capitalization of just over $250 billion. 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 may matter, because larger profits may imply greater market power. In the sections below, we explain why we believe KO will deliver higher returns than ABBV over the next three years. We compare a multitude of factors, such as historical revenue growth, yields and valuation.

KO stock has seen little change, falling slightly from levels of $55 in early January 2021 to around $60 now. On the other hand, ABBV stock has posted strong gains of 40%, rising from $105 in early January 2021 to around $145 today. That compares to an increase of about 20% for the S&P 500 over that roughly three-year period.

Overall, the performance of KO and ABBV relative to the index has been quite volatile. KO returns were 8% in 2021, 7% in 2022 and -8% in 2023, while ABBV returns were 26% in 2021, 19% in 2022 and -11% in 2023. In comparison, S&P 500 returns were 27% in 2021, -19% in 2022, and 19% in 2023 – indicating that KO and ABBV underperformed the S&P in 2021 and 2023.

Actually, consistently beating the S&P 500 – in good times and bad – has been difficult in recent years for individual stocks; for consumer staples heavyweights including WMT, PG and COST, and even for megacaps GOOG, TSLA and MSFT. On the other hand, the Trefis High quality walletwith a collection of 30 titles, has has outperformed the S&P 500 every year during the same period. Why is that? As a group, stocks in the HQ portfolio have generated better returns with less risk relative to the benchmark and less roller coaster ride, as evidenced by HQ Portfolio Performance Metrics.

Given the current uncertain macroeconomic environment, characterized by high oil prices and high interest rates, could KO and ABBV face a similar situation as they experienced in 2021 and 2023 and underperform the S&P over the next 12 months – or will they see a sharp increase? We expect both titles to grow over the next three years, but KO will likely fare better between the two.

1. AbbVie

ABBB
Revenue growth is better

• AbbVie’s revenue growth was better, with 21.2% average annual growth rate over the past three years, compared to 5.6% for Coca-Cola
  EAST
  .
• For Coca-Cola, both in-home and out-of-home distribution channels have grown, driven primarily by strong pricing trends.
• The North America and Latin America segments saw strong sales growth of 19% year-on-year in 2022, driven by both volume growth and improved price realization.
• Lately, the company is seeing more success in the out-of-home beverage sector than in the in-home beverage sector.
• AbbVie’s revenue growth was supported by its Allergan
  AGN
  acquisition in 2020.
• AbbVie is best known for its blockbuster drug – Humira – used, among other things, to treat rheumatoid arthritis and Crohn’s disease. Humira reported revenue of $21.2 billion in 2022, reflecting 3% year-over-year growth. However, Humira now faces competition from biosimilars and its sales are expected to drop significantly in the coming years.
• For comparison, Humira sales fell 31% to $9.4 billion for the nine months ending September 2023. The company expects sales of the drug to fall 35%. This year.
• AbbVie, to some extent, is able to offset Humira’s revenue loss by gaining market share for some of its relatively new drugs, primarily Skyrizi and Rinvoq. These medications are used to treat plaque psoriasis and rheumatoid arthritis. For perspective, these two products generated $6.6 billion for the nine months ending September 2023, reflecting a solid 51% year-over-year growth.
• Over the last twelve months, Coca-Cola’s 6.3% revenue growth fared better than AbbVie’s -4.6%, with Humira’s decline in sales weighing on its figure. business.
• OUR Coca-Cola Revenue Comparison And AbbVie Revenue Comparison Dashboards provide more information about company sales.
• Looking ahead, Coca-Cola is expected to see mid-single-digit growth over the next three years, while AbbVie may see weak growth over this period amid declining Humira sales. That said, AbbVie’s recent acquisitions, including ImmunoGen, will help drive long-term growth. AbbVie announced plans last week to acquire ImmunoGen for $10 billion in an all-cash deal, giving the company a potentially blockbuster oncology drug, Elahere. ⁽¹⁾

2. AbbVie is more profitable

• Coca-Cola’s reported operating margin fell by 29.9% in 2019 to 28.8% in 2022, as AbbVie’s operating margin declined by 39.0% has 31.2% over this period.
• Looking at the most recent twelve-month period, AbbVie’s operating margin of 31.0% the prices are better than 28.4% for Coca-Cola.
• OUR Coca-Cola operating profit comparison And AbbVie Operating Profit Comparison dashboards contain more details.
• When it comes to financial risk, Coca-Cola fares better with its 16% debt as a percentage of equity less than 24% for AbbVie and its 13% cash as a percentage of assets greater than ten% for the latter, which implies that Coca-Cola has a better debt position and a larger cash reserve.

3. The network of everything

• We see that AbbVie has experienced better revenue growth and is more profitable. On the other hand, Coca-Cola has a better financial situation.
• Now, looking at the outlook, using P/S as a basis, due to the sharp fluctuations in P/E and P/EBIT, we believe that Coca-Cola will deliver better returns over the next three years compared to AbbVie.
• Comparing current valuation multiples to historical averages, KO is doing slightly better. Coca-Cola shares are trading at 5.6x sales compared to its average of the last five years of 6.8xand AbbVie shares trade at 4.5x income compared to the average of the last five years of 5.3x.
• OUR Comparison of Coca-Cola valuation ratios And Comparison of AbbVie valuation ratios have more details.

Although KO may outperform ABBV over the next three years, it is worth seeing how Coca-Cola’s peers pricing on metrics that matter. Further valuable comparisons for companies in all industries can be found at Peer comparisons.

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