AbbVie’s monster market capitalization and massive share price appreciation over the past five years alongside large dividend payments has attracted a host of new investors but is it a buy now?
Ranked #74 in the Forbes Global 2000 list, AbbVie Inc. (NYSE:ABBV) is no ordinary biopharmaceutical company but rather has a diversified portfolio and noteworthy market share following the separation from Abbott Laboratories (NYSE:ABT) in 2013.
Since then, AbbVie has expanded its portfolio via R&D and acquisitions and its market value has followed suit, currently sitting at nearly $320 billion.
Shareholders have flocked to the high dividend, consistent hikes and high yield since AbbVie started operating as a standalone company in 2013. Nonetheless, the CEO switch and loss of Humira exclusivity has raised near-term uncertainties.
How Will Humira Exclusivity Affect AbbVie?
The rheumatoid arthritis drug Humira, which has enjoyed market supremacy for years, is facing intense competition from biosimilars. The loss of exclusivity in 2023 is eroding AbbVie’s revenues.
AbbVie’s worldwide net revenues decreased by 5.4% year-over-year to $14.30 billion in the fourth quarter of 2023 while net revenues from immunology declined 12.3% from the year-ago quarter to $6.95 billion.
The decrease in immunology revenues was primarily due to the Humira biosimilar competition. Global Humira net revenues came in at $3.30 billion, marking a more than 40% decrease from the year-ago period.
In addition, net revenues declined significantly to $54.32 billion for the year amid the weakness in the Humira market and oncology portfolio.
AbbVie’s adjusted EPS of $11.11 for the fiscal year was $0.63 higher than the company’s guidance. For the fourth quarter it was marginally higher than expected, but fell by 22.5% year-over-year to $2.79.
Growth To Resume Next Year?
On a brighter note, the company’s other therapeutic drugs, such as Skyrizi, Rinvoq, Ubrelvy, and Qulipta, are gaining traction and should help compensate for the Humira downturn. These drugs are expected to see double-digit sales growth this year.
Management anticipates revenue growth will resume next year at a CAGR in the high single digits until 2029. The company expects adjusted EPS between $11.05 and $11.25 for the current fiscal year.
Management is also hopeful about immunology prospects, Skyrizi and Rinvoq, and has raised the combined revenue outlook from approximately $6 billion to more than $27 billion in 2027.
For the most recent quarter, global Skyrizi and Rinvoq net revenues grew, respectively, by 51.6% and 62.8% on an annualized basis, driven by expanding market share. It also increased its Ubrelvy and Qulipta revenue outlook to over $3 billion.
AbbVie has gained significant traction in the pharmaceutical landscape and expects to launch new therapies and break into disease areas with existing drugs in the coming years, which should support long-term revenue targets.
While the Humira exclusivity loss raised concerns, AbbVie’s expanding market share alongside other top products in its portfolio should be opportunistic and keep the company on track for stable long-term revenue growth.
Will Competition Stifle Growth?
Growing competitive pressures may not make it easy for the company to return to prior revenue and earnings levels but management does forecast strengthening financials through portfolio expansion and new agreements.
The company plans to acquire clinical-stage biopharmaceutical company Landos Biopharma this year to boost its portfolio to treat autoimmune and inflammatory diseases. Also, the company recently acquired ImmunoGen to bolster its oncology segment.
However, it might be a while before the company can return to its historical growth levels. As AbbVie navigates the ongoing challenges, revenues and operating earnings are likely to bear the brunt in the coming quarters, not least because the company relies significantly on exclusive rights to ensure the profitability of its products.
Can AbbVie Sustain Its Dividend Payments?
The S&P Dividend Aristocrats Index comprises an elite grouping of companies that have raised their dividends for 25 or more consecutive years.
While AbbVie got placed on this index due to its parent company’s track record, it is likely one of the favorites among income investors today. The company has grown its dividend by over 285% since beginning its independent journey in 2013 and has paid out $10.5 billion in cash dividends in 2023.
AbbVie’s dividend payouts have grown at a CAGR of 7.4% over the past three years and 8.7% over the past five years.
At the current price, AbbVie’s $6.20 forward annual dividend yields 3.43%, while its four-year average yield stands at 4.18%, more than 200% higher than the sector average.
Its payout ratio of 53.92% looks healthy, considering its long streak of payments, steady cash flows, and market positioning.
Over the past three years, levered FCF grew at an 11.7% CAGR, so in spite of the current pressure on revenues and earnings, the company is well-positioned to sustain dividend payments for the foreseeable future.
Is AbbVie Stock a Buy or Sell?
Of 21 analysts who have rated the stock, 8 recommend buying it, and 13 rank it as a Hold with no Sell ratings.
The average price target of $183.88 suggests almost no upside. Moreover, in terms of non-GAAP forward price-to-earnings, the stock is trading at 16.08x, 53.8% higher than the five-year average.
Its forward price-to-sales of 5.87x is more than 40% higher than its 5-year average. Given the company’s growth concerns, this valuation is highly stretched, suggesting a correction.
On a qualitative note, the company announced that Robert Michael, the current COO, will replace Richard Gonzalez as the CEO on July 1.
Gonzalez has guided the company through a remarkable decade with significant growth so, with the company running into a period of financial weakness, the reorganization at the top raises concerns about what the future holds.
As such, waiting for the company to realign its business strategies and find the right product mix for growth might well be wise before buying the stock.
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