Analysts' Choice: AbbVie: Buy Into The Contradiction

9/19/2016


  Recent Price
$63
  Dividend
$2.28
  Yield
3.6%
  P/E Ratio
14
  Shares (millions)
1,632
  Long-Term Debt As % Of Capital
87%
  52-Week Price Range
$68.12 - $45.45

AbbVie ($63; ABBV) delivers the growth investors expect of a biotechnology company, while offering a dividend more befitting a utility. AbbVie yields 3.6%, higher than any other health-care stock in the S&P 500 Index and ranking among the top 15% of all stocks in the index. The dividend rose 12% in the March quarter.

Rising drug prices have become a popular target for politicians, including presidential candidate Hillary Clinton. However, any plan to take shape in Congress would likely focus more on generics and older branded drugs than the newer biological treatments that comprise AbbVie's portfolio.

The Overall rank of 96 reflects scores of 70 or higher for Momentum, Value, Quality, and Earnings Estimates. AbbVie is a Long-Term Buy.

Pipeline no pipe dream

AbbVie's sales have climbed by double-digits in six straight quarters. In the 12 months ended June, cash from operations jumped 77%, while free cash flow nearly quadrupled to $4.10 billion. But operating growth could slow once AbbVie loses exclusivity for its biggest product.

Humira, a drug that treats arthritis and Crohn's disease, generated 61% of the company's sales in the 12 months ended June but loses U.S. patent protection in December (and in 2018 in Europe).

In July, an advisory panel to the U.S. Food and Drug Administration recommended regulators approve Amgen's ($170; AMGN) biosimilar version of Humira. AbbVie responded by filing a patent lawsuit against Amgen in the hope of blocking the copycat. Management insists it can hold off biosimilar competition to Humira until 2022, though some analysts see the drug's sales beginning to slip in 2018 or 2019.

With potential rivals nipping at Humira's heels, AbbVie must call on its drug pipeline to support future growth. AbbVie's late-stage drugs mostly focus on treating cancer, particularly blood cancer. To boost its portfolio of potential cancer drugs, AbbVie purchased Pharmacyclics for about $21 billion in May 2015 and agreed to buy Stemcentrx for at least $5.8 billion in April. Milestone payments could push Stemcentrx's price tag to $9.8 billion.

Encouragingly, two new drugs have helped drive recent growth: Imbruvica, launched in 2015 to treat chronic lymphocytic leukemia, and Viekira Pak for hepatitis C, introduced in late 2014. Sales of Imbruvica, acquired through the Pharmacyclics deal, totaled $1.47 billion for the 12 months ended June (6% of total sales) and could eventually exceed $6 billion annually. Viekira Pak (7%), faces pricing pressure from rival treatments.

Conclusion

Analyst estimates for both 2016 and 2017 have risen over the last month. AbbVie is currently projected to grow per-share profits 12% this year and 18% next year, growth potential not fully reflected in the stock price. Shares trade at 13 times estimated 2016 earnings, a 29% discount to the average S&P 500 biotech stock.

An annual report for AbbVie can be obtained at 1 N. Waukegan Road, North Chicago, IL 60064; (847) 932-7900; www.abbvie.com.

ABBVIE
Quarter
Per-Share Earnings*
($)
Sales
Change
Quarterly
Price Range
($)
P/E Ratio
Range
Jun '16
1.26
vs.
1.08
18%
63.87
-
54.24
14 - 12
Mar '16
1.15
vs.
0.94
18%
60.12
-
50.71
14 - 12
Dec '15
1.13
vs.
0.89
17%
64.30
-
45.45
16 - 11
Sep '15
1.13
vs.
0.89
18%
71.60
-
53.87
19 - 14
           
Year
(Dec.)
Sales
 ($Bil.)
Per-Share
Earnings*
($)
Per-Share
Dividend
($)
52-Week
Price Range
($)
P/E Ratio
Range
2015
22.86
4.29
2.02
71.60
-
45.45
17 - 11
2014
19.96
3.32
1.66
70.76
-
45.50
21 - 14
2013
18.79
3.14
1.60
54.78
-
33.33
17 - 11
2012
18.38
NA
NA
NA
NA
 
Quadrix Scores †
Overall
Momen-
tum
Value
Quality
Financial
Strength
Earnings
Estimates
Performance
96
83
70
96
74
82
53

   * Earnings exclude special items.
   † Quadrix scores are percentile ranks, with 100 the best.
   NA Not available.


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