While AbbVie (NYSE:ABBV) has shown strong profit growth over the last year, ABBV stock has sold off recently over worries about Humira patent expirations in some parts of the world.
Although the concerns may be overblown, losing any patent protection on the widely prescribed drug breeds the type of uncertainty that often leads to stock declines. What gives investors confidence in the shares, though, is a promising drug pipeline should keep AbbVie stock on a growth trajectory even as Humira fades as a significant revenue contributor.
To be sure, AbbVie stock has struggled this year. ABBV peaked at $125.86 a share back in January. By April, it had fallen below $90 per share, and it has found itself stuck in a range since. Like many stocks, the October correction pushed it down further, taking the shares as low as $77.50 a piece.
Competition Aggravates Patent Expirations
Since its split from Abbott Laboratories (NYSE:ABT) in 2013, AbbVie has built its fortunes on Humira, a treatment for a range of conditions, including rheumatoid arthritis, psoriatic arthritis and Crohn’s disease. With its patent beginning to expire in some key markets, Humira is facing increased competition. ABBV stock has sold off as investors wonder where the company will go next.
I believe Wall Street may have overreacted. Data analysts at Evaluate Pharma rate AbbVie’s pipeline as second-best in the industry for value creation. The company has also gained approval for drugs that treat conditions such as cancer, hepatitis C, and endometriosis. At the same time, AbbVie has managed to slow the loss of its patent on Humira. In the U.S., the patent will remain in place until at least 2022, which should give ABBV stock enough runway to transition into new revenue sources.
Despite the stock’s struggles, analysts forecast 42% profit growth for this year. Over the next five years, they predict average annual increases of almost 17%.
The current price-to-earnings (PE) ratio stands at about 11.3, which seems remarkable on many levels. ABBV stock has maintained an average PE of about 26.8 over the last five years. Rarely do stocks posting double-digit profit growth fall into single-digit multiples.
Perhaps investors have begun to see its future potential. November has seen the stock turn around, and it again trades at about the $90 per share level. True, AbbVie stock remains range-bound, however these financials indicate it can eventually break out of its range.
Wall Street may need to see better sales numbers from newer drugs before they bid AbbVie shares higher. While they wait, ABBV’s dividend will reward them for their patience. As a result of its previous association with Abbott, ABBV stock is considered a “dividend aristocrat” on the coattails of the former parent’s 46 consecutive years of dividend increases.
Approval of a dividend increase for February brought the annual payout to $4.28 per share. That give the stock a yield of about 4.75%. Among the dividend aristocrats, only AT&T (NYSE:T) pays a higher cash return. Given company growth prospects and the expectations for increases that come with its aristocrat status, income investors will struggle to find better alternatives than AbbVie stock.
Bottom Line on AbbVie Stock
As Humira begins a slow fade from driving AbbVie revenue, new drugs should keep ABBV stock on a growth trajectory. Without a doubt, losing Humira poses risks for the company. However, despite this uncertainty, analysts still expect AbbVie to maintain its double-digit profit growth. Equally notable is that the decline in the stock price has pushed the PE ratio close to the single digits.
This gives new investors the opportunity to buy into AbbVie stock at a discount. It also serves income investors who can earn a dividend of about 4.75% with annual increases for years to come. Between the cash payouts and the potential for stock price appreciation, both growth and income investors should enjoy a profitable future in ABBV stock.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.