AbbVie (ABBV): An Undervalued Dividend Aristocrat

The fair value range is tailored to each stock’s historical median P/E multiple (blue dotted line) and then smoothed to form a channel that contains 50% of the historical P/E multiples for the specific stock.

Based on the above chart, AbbVie is currently trading in the margin of safety and hence I view it an undervalued Dividend Aristocrat.

Risk Assessment

Management will have to deliver on the EPS forecasts, especially during the next two years. Management’s credibility will be tested.

ABBV must generate the necessary cash flow to reduce debt by at least $15 billion to $18 billion (forecasted by management) and continue to fund dividend growth. 

The Allergan acquisition has been forecasted to be accretive to earnings, at least 10% in year one and 20% after year two. 

Maintain the Dividend Aristocrat rating is essential to ABBV’s future success. 

Continue to expand the robust pipeline and meet the targets for the newly launched blockbuster drugs such as Rinvoq and Skyrizi. 

Pharma pricing was a significant discussion point before the recent election. It’s not clear how the new administration will consider this topic. But the Pharma companies will feel pressure to modify the pricing. 

Final Thoughts on AbbVie: An Undervalued Dividend Aristocrat

ABBV is an undervalued Dividend Aristocrat that has produced double-digit growth in both total returns and dividend increases since 2013 and outperformed its peer group and the S&P index.

As a result of its eight-year journey, ABBV has created a company that has introduced a series of blockbuster drugs, established a robust pipeline, and well-positioned itself to mitigate the impact of biosimilar competition with its growth platform. 

ABBV currently offers a generous ~4.5% dividend yield and trades in the margin of safety. ABBV offers current income, dividend growth, and an opportunity to realize capital appreciation for the dividend growth investor. This situation represents the classic definition of total return. 

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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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