AbbVie (ABBV): An Undervalued Dividend Aristocrat

Let’s examine the historical results and the analysts’ estimates through 2022 for the “new” ABBV.

Key Performance Metrics

The darker blue results indicate superior performance against all North American stocks, with the lighter blue displaying above-average performance. The Non-GAAP EPS results have been quite impressive, based on the latest CAGRs. Also, Management increased the FY 2021 EPS guidance in its May 1, 2021 news release.

The analysts’ latest EPS estimates through 2022 are shown in the above chart. These estimates show that ABBV would be trading at a P/E ratio of 8.94 (FY2021) and 8.1 (FY2022). These low multiples would suggest the company looks to be undervalued compared to any reasonable P/E multiple. Since ABBV has a history of outperforming analysts’ estimates, I would reasonably expect the FY 2021 and FY 2022 EPS estimates to be surpassed. 

The full impact on Humira’s revenues from biosimilars is one of the critical issues that concern the market.

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Source: Portfolio Insight

The latest year’s revenues have been impacted by the Humira biosimilar competition internationally. FY2020 shows the positive impact of the Allergan acquisition beginning to come online and the negative impact of Covid-19 on elective procedures.  The effect of loss of exclusivity will likely be felt starting in 2023. 

Source: Portfolio Insight

Management’s plans call for reducing the dependency on Humira from 60% of the revenues to 40% of revenues by the end of FY2022 while establishing a robust platform for significant growth. 

Skyrizi and Rinvoq have demonstrated differentiated clinical profiles compared to Humira and are expected to lower AbbVie’s dependence on Humira. With many new indications expected in the next couple of years, sales of Skyrizi and Rinvoq could be higher and have the potential to replace Humira when generics are launched in 2023.

ABBV has consistently performed among the best companies in rewarding its shareholders with dividend increases. 

Source: Portfolio Insight

The historical dividend growth performance has been outstanding since 2015, particularly with the superior performance (deep blue shading) in the 3 & 5-year CAGRs. The Board has indicated its intent to funding additional dividend increases based on its confidence to generate superior results. Forecasted FY2021 dividend payments are shown in the chart, an increase of 10.17% effective February 2021. 

Earnings Based Fair Value

Let’s examine the historical Fair Value chart for ABBV based on earnings.

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Source: Portfolio Insight

There are various approaches that investors use to estimate the fair value of a particular stock. Typically, I use the historical P/E-based approach inspired by Benjamin Graham, and more recently, the Dividend yield-based approach by Geraldine Weiss described in her book, Dividends Don’t Lie. We tend to use these approaches as a proxy to help shape our view about what we expect to happen.

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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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