AbbVie: A Growing Drug Portfolio

01/01/2016 7:00 am EST


Ingrid Hendershot

Founder and President, Hendershot Investments, Inc.

Our latest new buy recommendation focuses on treating conditions such as rheumatoid arthritis, psoriasis, and Crohn's disease, hepatitis C, HIV, Parkinson's disease, chronic kidney disease, and cystic fibrosis, explains Ingrid Hendershot, editor of Hendershot Investments.

AbbVie (ABBV) was formed in 2013 following separation from Abbott Laboratories (ABT). Currently, HUMIRA is its leading biologic therapy approved to treat a variety of autoimmune diseases. HUMIRA accounted for 63% of the company’s revenues in 2014.

The company also has a pipeline of promising new medicines. These include more than 30 compounds or indications in Phase 2 or Phase 3 development.

AbbVie is on track to launch more than 20 new products through 2020 with the pipeline having the potential to deliver nearly $30 billion in sales.

Financial results for 2013 and 2014 reflect the higher expenses associated with operating as an independent company as well as one-time acquisition and R&D charges.

AbbVie reported third quarter net revenues rose a healthy 18% to $5.9 billion with net income and EPS both more than doubling to $1.2 billion and $.74, respectively.

Third quarter sales growth was driven by continued strength of HUMIRA. Gross margin expansion of 220 basis points to an adjusted gross margin of 83.3% was driven by product mix, operating efficiencies and the impact of foreign exchange.

AbbVie raised its adjusted EPS guidance for the full 2015 year to $4.26-$4.28 or $3.16-$3.18 on a GAAP basis. The firm expects to deliver double-digit adjusted EPS growth on average through 2020 with total company sales of about $37 billion by 2020.

The company expects significant margin expansion, targeting 2020 operating margin greater than 50% with an average of 100-200 basis points of improvement per year. Management is committed to returning cash to shareholders through a strong and growing dividend.

The company announced a 12% increase in the dividend for fiscal 2016. The dividend currently yields a healthy 3.7%. Year-to-date, the company has also repurchased $6.25 billion of its shares. AbbVie’s outlook for 2016 adjusted EPS is in the range of $4.90-$5.10, reflecting strong double-digit growth.

Long-term investors may want to inject AbbVie into their portfolio, a high quality biotech firm with double-digit growth and a healthy dividend. Buy.

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