AbbVie (ABBV): An Undervalued Dividend Aristocrat

Summary on AbbVie – An Undervalued Dividend Aristocrat      

  • AbbVie Inc (ABBV) has an established eight-year track record of producing outstanding returns and superior dividend growth.
  • Created a solid growth platform consisting of industry-leading drugs, a robust pipeline that is positioned to mitigate the impact of biosimilar competition.
  • Strong cash flow will enable ABBV to deleverage the balance sheet and support a growing dividend.
  • Earnings per share are forecasted to increase 14.3% annually over the next two years so that investors would be rewarded with current income, dividend growth, and capital appreciation.
  • AbbVie is an undervalued Dividend Aristocrat, offers a generous yield of roughly 4.5%, is currently trading in the margin of safety, and represents a buying opportunity. 

AbbVie - An Undervalued Dividend Aristocrat

Investment Thesis

Since the Abbott Laboratories (ABT) spinoff in 2013, AbbVie Inc. (ABBV) has rewarded shareholders by producing an 8-year total return CAGR of 20.15% and a dividend CAGR of 16.71%. These superior results are among the top 20% of dividend growth companies. I will explain in this article why I view AbbVie as an undervalued Dividend Aristocrat.

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Source: Portfolio Insight

During the past eight years, ABBV attempted to transform itself from depending on one drug (Humira), accounting for 60% of its revenues and facing the loss of patent protection (loss of exclusivity) that arguably placed ABBV’s dividend safety at risk. Through a series of negotiated transactions, ABBV delayed these impacts until 2018 in Europe and 2023 in the U.S.  

ABBV made several key acquisitions, broadened its product line, created a robust pipeline to reduce its dependence on Humira, and mitigate the impact of competition from biosimilars. More recently, the market has damped the expectations for ABBV because of the debt load needed to fund the Allergan acquisition and the cash flow that would be required to deleverage the balance sheet and support a growing dividend going forward.

Analysts’ estimates forecast EPS growth of 18.2%, 10.4%, for FY 2021, FY 2022, respectively. ABBV is currently trading in the margin of safety and offering a yield of about 4.5%.  I will describe why I believe AbbVie represents a strong buying opportunity and I view it as an undervalued Dividend Aristocrat.

AbbVie-Dividend-Aristocrat

Brief History of ABBV

Abbott Laboratories (ABT) viewed the pharmaceutical business (ABBV), and its core medical products and device business as having different risk profiles and therefore were essentially two separate businesses. After a thorough study, the Board of Directors decided to spinoff the pharmaceutical business effective January 2, 2013. The blockbuster drug Humira accounting for over 60% of the newly formed company’s revenues & profits, was facing the threat of biosimilar competition within a few years.  

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Disclosure: I am long ABBV.

Disclaimer: I do not recommend any decision to the reader or any user, please consult your own research. Thank you.

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