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Better Buy: AbbVie vs. Gilead Sciences

By Keith Speights – Feb 16, 2020 at 1:00PM

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Promising pipelines. Attractive valuations. Great dividends. AbbVie and Gilead check off all three boxes. But one is the better pick.

AbbVie (ABBV 0.04%) and Gilead Sciences (GILD -1.43%) must have missed the invitation to the party the stock market threw last year. Both stocks trailed the S&P 500 index's performance in 2019 by a wide margin.

However, both AbbVie and Gilead have been big winners in the past. And they both could deliver strong returns in the future. Which of these two stocks is the better pick right now? Here's how AbbVie and Gilead compare.

Scientist holding a test tube with a rack of nine other test tubes

Image source: Getty Images.

Growth

Some investors have focused primarily on AbbVie's challenges with its top-selling drug Humira facing biosimilar competition in Europe already and on the way in the U.S. in 2023. To be sure, those challenges are real and daunting. But AbbVie's strong fourth-quarter results showed that there's more to its story than just Humira.

The reality is that AbbVie has multiple growth drivers. Put Imbruvica at the top of the list. Market researcher EvaluatePharma projects that the blood cancer drug will rank among the world's top five best-selling blockbusters by 2024. Another blood cancer drug, Venclexta, is also a fast-rising star.

Probably the best thing going for AbbVie, though, is its two drugs that could take the immunology baton from Humira -- Rinvoq and Skyrizi. Both drugs should become megablockbusters within the next few years.

In addition, AbbVie is betting that its pending acquisition of Allergan will help offset the inevitable sales declines on the way for Humira. Allergan's Botox franchise and up-and-coming new drugs such as antipsychotic Vraylar should give AbbVie a boost once the deal is done.

Gilead Sciences' biggest trouble spot in recent years has been its hepatitis C virus (HCV) franchise. Part of the problem has been competition from AbbVie, but the main issue is that there are simply fewer patients now that so many patients have been cured of hep-C. The good news for Gilead, though, is that its HCV sales are stabilizing somewhat.

This stabilization should allow Gilead to generate growth with its other drugs. The company has long dominated the HIV market. It should continue to do so with powerhouse drug Biktarvy and a promising long-acting HIV capsid in the pipeline.

Gilead also expects to soon expand into the immunology market with filgotinib, a drug licensed from Galapagos. The big biotech hopes to win FDA approval for filgotinib in treating rheumatoid arthritis later this year and is evaluating the drug in late-stage clinical studies targeting several other immunology indications.

Although Yescarta hasn't delivered the sales growth so far that some predicted, the cell therapy should continue to pick up momentum. Gilead also has several other cell therapies in development that could be winners in the future. 

Valuation

Both AbbVie and Gilead appear to be cheap based on their forward earnings multiples. AbbVie's shares trade at only nine times expected earnings, while Gilead's shares trade at 10.5 times expected earnings.

However, Gilead appears to be more attractively valued using another metric. Its enterprise value-to-sales multiple currently stands at 3.9 compared to AbbVie's EV-to-sales ratio of 5.2.

Dividends

You won't find many if any biotech stocks with more attractive dividends than AbbVie and Gilead Sciences. AbbVie's dividend yield currently stands north of 4.8%. Gilead's dividend yields a little over 4%.

Gilead has boosted its dividend by an impressive 58% since initiating its dividend program in 2015. However, AbbVie's dividend track record is hard to top. The company has increased its dividend for 47 consecutive years, including the time it was part of Abbott Labs. And since being spun off from Abbott in 2013, AbbVie has raised its dividend by a total of 195%.

Better buy

I like both AbbVie and Gilead Sciences. I've owned both stocks for years. But if I had to pick just one of these two stocks, it would be AbbVie.

My view is that AbbVie's strategy to reduce its dependence on Humira is working. I think that the combination of solid growth despite the headwinds for Humira with an exceptionally strong dividend should enable AbbVie to deliver market-beating total returns over the long run.  

Keith Speights owns shares of AbbVie and Gilead Sciences. The Motley Fool owns shares of and recommends Gilead Sciences. The Motley Fool has a disclosure policy.

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Stocks Mentioned

AbbVie Inc. Stock Quote
AbbVie Inc.
ABBV
$143.06 (0.04%) $0.05
Gilead Sciences, Inc. Stock Quote
Gilead Sciences, Inc.
GILD
$62.86 (-1.43%) $0.91
Allergan plc Stock Quote
Allergan plc
AGN
Abbott Laboratories Stock Quote
Abbott Laboratories
ABT
$100.68 (-0.39%) $0.39
Galapagos Stock Quote
Galapagos
GLPG
$43.55 (-3.56%) $-1.61

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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