AbbVie Stock – Good for Income, Bad for Growth

AbbVie (ABBV) was created in January 2013 as a spinoff of Abbott Laboratories (ABT). AbbVie is a global, research-based biopharmaceutical company focused on treating conditions such as chronic autoimmune diseases; low testosterone; HIV; endometriosis; thyroid disease; Parkinson’s disease; and complications associated with chronic kidney disease and cystic fibrosis.

abbvieAbbVie’s flagship product is Humira, an injection used for the treatment of rheumatoid arthritis and similar conditions. In 2013, Humira generates approximately 57 percent of AbbVie’s sales, mostly within the US. AbbVie’s long-term strategic objective is to expand Humira sales through product expansion into the treatment for conditions such as uveitis, hidradenitis suppurativa and pediatric Crohn’s disease and expand its presence in underserved markets.

In addition to expanding sales of Humira, AbbVie seeks to expand its pipeline focusing research and development efforts on immunology, virology, oncology, renal disease, neurological diseases and women’s health. Both the growth of Humira and new products will be enhanced through AbbVie’s investments in emerging markets such as Brazil, China, Mexico and Russia.

AbbVie – Earnings Summary

In January, AbbVie reported fourth quarter 2013 revenue of $5.1 billion, down 1.8% (down 1.1% excluding foreign exchange rate fluctuations). The revenue decline was attributable to AbbieVie’s loss of exclusivity of its lipid franchise, offset by sales increases in Humira which increased 13.4% for the quarter and 18.1% in the US. Earnings per share for the quarter were $0.70 on a GAAP basis and $0.82 on an adjusted basis. Full year 2013 revenues were $18.8 billion, producing GAAP earninsg per share of $2.56, $3.14 on an adjusted GAAP basis.

Things began to turn up for AbbVie in the first quarter of 2014, reporting sales of $4.563 billion, up 5.4% and an increase in earnings per share from the same period last year of 4.4% to $0.61 on GAAP basis, $0.71 adjusted. Sales growth in the quarter was driven by continued strong growth in Humira, with sales increasing 17.5% and double digit sales growth in several other key products including by double-digit growth from key products including Synthroid, Creon and Duodopa.

In June, AbbVie raised its full-year earnings per share guidance 6 cents on strong underlying business performance and expected continued increased through 2015 based on strong results within its new treatment pipeline. In addition, AbbVie also announced the potential acquisition of the Ireland-domiciled pharmaceutical company Shire (SHPG) in reverse merger that would save millions in taxes.

In the second quarter AbbVie’s positive results continued with worldwide sales increasing 5% to $4.926 billion, producing a GAAP earnings per share of $0.68 and an adjusted earnings per share of $0.82. Sales growth was again driven by Humira ,with global sales increasing 26.2% and other products inculding key products including Synthroid, Sevoflurane and Duodopa.

In September, AbbVie announced collaboration agreements with Google’s Calico Life Sciences LLC (Calico) to develop treatment for age related diseases and Infinity Pharmaceuticals (INFI) to develop cancer treatments. Both these announcements were overshadowed by changes in US tax code that makes tax inversions less profitable and placed AbbVie’s purchase of Shire in question.

Earlier in October and in light of these new tax rules, AbbVie officially reversed course and recommending shareholders to vote against the Shire deal ,if that happens AbbVie will need to pay Shire a $1.64 billion break-up fee.

AbbVie – Stock Analysis

Given all the ups and downs in the news, AbbVie’s stock has been exceptionally resilient this year up over 8% to the S&P 500‘s 4.5% gain.

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Source: Yahoo Finance

Analyst 12-month consensus price target is $67 per share compared to a current trading range around $57. AbbVie has a trailing price-to-earnings ratio of 22, a forward P/E of 14.1 and a price to earnings growth ratio is quite high at 1.94. ABBV stock looks fairly valued.

AbbVie recently announced a big stock repurchase and increased in dividends by 17% which puts the forward dividend yield at about 3.5%. AbbVie’s dividend payout ratio is above 60% which I would typically be cautious of for income investors but with a 75% gross profit margin and a decreasing debt to equity ratio, AbbVie looks capable of holding that level without needing to cut its dividend anytime soon.

AbbVie looks to be a good stock for income investors, but not so good if you are looking for growth, given its current price, growth has already been built into stock price.

As of this writing, Kenneth Fick did not hold a position in any of the aforementioned securities. Write him at kfick@piercethefog.com or follow him on his blog at www.piercethefog.com.


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