AbbVie Has It All: Growth, Dividend Growth And Compelling Valuation

I have held AbbVie (ABBV) since it was originally spun off from Abbott Labs. Moreover, I have been aggressively adding to my position for clients needing current income and dividend growth. All in all, it has been an excellent performer in spite of the fact that it is being ridiculously undervalued by Mr. Market. No matter what widely-accepted valuation measurement I look at, AbbVie appears insanely cheap.

As of yesterday’s close (June 24, 2019), AbbVie was trading at a blended P/E ratio based on adjusted operating earnings of 9.4 offering a dividend yield of 5.5%. This represents a significant discount to its historical normal P/E ratio of 14.5 and its intrinsic value P/E ratio of 15.

Furthermore, as of yesterday’s close, AbbVie was also trading at a price to EBITDA of 7.8 which is a significant discount to its normal price to EBITDA of 10.9. Additionally, and I consider this important since AbbVie is a dividend growth stock, AbbVie’s normal price to operating cash flow was 9.3 compared to its normal price to operating cash flow of 13.4 and its fair value price to operating cash flow of 15.

AbbVie was also trading at its lowest price to sales ratio of 3.66 since it was spun off and was available to investors at attractive double-digit earnings yields and cash flow yields. But most importantly, all these incredible valuations were supported by strong above-average historical growth and expectations for continued future growth in each of the above metrics.

On June 20, 2019, AbbVie also maintained its $1.07 per share quarterly dividend which is in line to be a significant increase over last year’s $3.95 dividend per share. Which by the way, is also well covered by both operating cash flow and free cash flow. Furthermore, according to Argus research in May of this year, AbbVie updated its adjusted earnings 2019 guidance to $8.73 to $8.83 which was up from its prior guidance of $8.65 to $8.75.(Note: I will be elaborating on all these metrics and later in the FAST Graphs analyze out loud video).

Why Are AbbVie’s Valuations So Low?

Anyone who has been following AbbVie realizes that the company generates more than half its revenues from its flagship drug Humira which lost its patent protection outside of the US and faces competition from several recently launched biosimilars. However, Humira does not face greater competition from biosimilars in the US until 2023. Nevertheless, according to Argus research, Humira sales fell 23% to $1.23 billion outside the United States. This was in line with company guidance and they also project a 30% decline in Humira sales outside the US in all of 2019.

Humira sales growth in the United States increased 7.1% to $3.2 billion. However, although this is still strong growth, US sales growth has slowed from double-digit rates in previous quarters.AbbVie has been fighting back with the recent approval of Skyrizi in both the US and Japan for treatment of moderate-to-severe psoriasis which clinical trials showed it to be superior to Humira.  Skyrizi is also on track for approval in Europe. However, this is only one of many candidates in AbbVie’s pipeline. The following description of AbbVie Inc. courtesy of the Wall Street Journal illustrates the diversity of their pipeline:

“AbbVie, Inc. is a research-based biopharmaceutical company, which engages in the development and sale of pharmaceutical products. It focuses on treating conditions such as chronic autoimmune diseases in rheumatology, gastroenterology and dermatology; oncology, including blood cancers; virology, including hepatitis C virus (HCV) and human immunodeficiency virus (HIV); neurological disorders, such as-as well as Parkinson’s disease; metabolic diseases, comprising thyroid disease and complications associated with cystic fibrosis; pain associated with endometriosis; and other serious health conditions. The company was founded on January 1, 2013, and is headquartered in North Chicago, IL.”

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Disclosure:  Long ABBV

Disclaimer: The opinions in this document are for informational and educational purposes only and should not be construed as a recommendation to buy or sell the stocks ...

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Dan Richards 3 weeks ago Member's comment

$ABBV certainly sounds like a great buy.