Shares of AbbVie (NYSE:ABBV) have been hammered lately following a disappointing earnings report and slowing European sales of their bestselling drug, Humira. ABBV stock is now trading at the lowest levels since September of 2017 after falling another 4% yesterday.
Certainly some of the selling was warranted due to slowing growth concerns and tepid guidance. But it has now gotten overdone given the fundamental and technical backdrop. Look for ABBV stock to find support and grind higher from current levels.
Earnings were released Friday with the company reporting $1.90 in EPS and $8.31 billion in revenue for Q4. Both of these were just shy of consensus estimates of $1.93 in EPS and $8.36 billion in revenues. The company also guided slightly lower for full year 2019 with expectations now of $8.65 to $8.75 per share falling mostly below analysts estimates for $8.74 per share. Sales of Humira, the company’s blockbuster arthritis drug, also was a drag. Overseas sales are expected to be down 30%, but sales in the U.S. are still protected from competition until 2023.
While both earnings and revenues were just a slight miss, ABBV stock is down 10% over the past 2 days on the news. This makes the forward P/E less than 9. Important to remember that the company did still maintain solid guidance of $8.70 in earnings for 2019, so ABBV stock is definitely looking more attractive on a valuation basis.
ABBV stock is getting extremely oversold from a technical perspective. MACD is now at readings that has marked significant lows in the past. AbbVie is trading at a huge discount to the 20 day moving average, another indication that the selling has gotten to an extreme. This combination of extremes in MACD to the downside and large discounts to the 20-day moving average has coincided with major buying opportunities in the past.
AbbVie stock now sports a very attractive dividend yield of 5.5% and a payout ratio of just 54.5%. This should help serve to buffer any additional downside damage from current levels.
Implied volatility remains high in ABBV options due to the recent sharp sell off. This means option prices are still comparatively expensive, so selling a covered call makes sense. Selling the January 2020 $80 call at $6.50 cushions the downside by 8.4% while still leaving some upside price appreciation. Buying ABBV stock around $77 and selling the call around $6.50 puts the net cost at $70.50.
Tim Biggam may hold some of the aforementioned securities in one or more of his newsletters. Anyone interested in finding out more about Tim and his strategies can go to https://marketfy.com/item/options-and-volatility.
