AbbVie: Unique Mix of Growth, Income & Value

06/11/2019 5:00 am EST

Focus: HEALTHCARE

Ben Reynolds

CEO, Sure Dividends

AbbVie (ABBV) is a biotechnology company that is focused on the development and commercializing of treatments in immunology, virology, and oncology, explains growth and income expert Ben Reynolds, editor of Sure Retirement.

AbbVie generates $33 billion in annual revenue and has a $114 billion market capitalization. The firm reported Q1 earnings on 4/25/19 and results were better than expected. Revenue declined 1.3% year-over-year, but that slightly beat expectations.

Imbruvica continues to be a strong driver of growth for the company, grossing just over $1 billion during the quarter, a 34% increase over the prior year.

Humira continues its decline as it loses patent protection, losing 5.6% in revenue year-over-year to $4.5 billion. Humira remains the world’s highest-grossing drug despite recent declines, and AbbVie is working to replace the revenue it will lose in the coming years as Humira’s patent protection expires.

AbbVie’s earnings-per-share rose 14% year-over-year to $2.14, beating estimates. In addition, the company’s enormous buyback program saw the share count fall 7% lower year-over-year, producing roughly half of the company’s total earnings-per-share growth for Q1. We’re now expecting AbbVie to produce $8.78 in earnings-per-share for this year, representing 11% growth from 2018.

AbbVie did not exist as a standalone entity during the last recession, so there is no track record for this company. However, its former parent, Abbott Labs (ABT), did exist during the last recession and it performed extremely well, continuing to grow its earnings-per-share at impressive rates.

AbbVie’s competitive advantage is its large cash flows that allow it to spend aggressively on research and development. The company’s size advantage has allowed it to build a pharmaceutical portfolio that is robust, deep, and has potential blockbusters waiting in the wings like Imbruvica.

AbbVie’s earnings-per-share compounded at 20% annually from 2013 to 2018. While Humira revenue is likely going to decline sharply in the coming years, AbbVie’s R&D is being used to create new drugs to fill the gap. In addition, AbbVie uses some of its internally generated cash to repurchase shares and shrink the float. We expect 9.5% annual earnings-per-share growth ahead.

AbbVie trades for just 8.9 times our earnings-per-share estimate of $8.78 for this year, which compares very favorably to our estimate of fair value at 13 times earnings. AbbVie, therefore, represents a unique combination of a very high yield, strong growth prospects, and a deeply undervalued stock that offers investors 22%+ prospective total annual returns.

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