Even though AbbVie’s (NYSE:ABBV) combo HIV drug does not benefit patients suffering from severe Covid-19, the company has an impending buyout of Allergan (NYSE:AGN) and strong growth ahead. But with a rich dividend yield of nearly 6% and a low price-earnings ratio, investors should expect steady growth for years to come from ABBV stock.
In the fourth quarter, AbbVie’s profits grew by more than 16% to $2.21 a share (adjusted). In 2020, the company previously forecast its Skyrizi and Rinvoq products will add more than $1 billion in revenue. It raised that target to $1.7 billion in revenue.
With its guidance up 70%, chances are good that sales for these two products will exceed management expectations again in 2021. The company said that “the better-than-expected launch trajectories of Skyrizi and Rinvoq and the continued strong performance of our hematological oncology franchise has further increased our level of confidence that these platforms will drive significant growth over the long term.”
AbbVie’s extensive research and development efforts will continue to pay off in the years ahead. Already, such activities resulted in many new products that added around $9 billion in revenue in 2019. Expanded research for Skyrizi and Rinvoq and results for its programs will surely get investors more interested in ABBV stock.
AbbVie’s Rich Pipeline
AbbVie has nearly 40 ongoing clinical studies. Its most advanced program, ABBV-951 for the treatment of Parkinson’s disease, may gain regulatory approval. That will add to its already deep pipeline of products. Veliparib (ABT-888), which treats ovarian cancer and BRCA breast cancer (BRCA refers to the BRCA1 and BRCA2 genes) is another big opportunity.
AbbVie has 30 proof-of-concept programs at various phases in the pipeline. So, when it adds the planned acquisition of Allergan to the business, it will build a lead in the central nervous system, neuroscience, and aesthetics markets.
The Rinvoq Phase 3 study for treating psoriatic arthritis is a notable contributor to future results. Management said that “psoriatic arthritis and ankylosing spondylitis make up an important segment of the rheumatology market with global market sales of approximately $14 billion.”
In the irritable bowel disease segment, which includes Crohn’s disease and ulcerative colitis, AbbVie forecasts global market sales topping nearly $18 billion.
Opportunity with Allergan Acquisition
AbbVie raised its expectations for Allergan after the company posted strong quarterly results. It reported fourth-quarter revenue of $4.35 billion, up 6.6% from the previous year. This is despite Allergan lowering R&D expenses by 33.3%.
Looking ahead, AbbVie has plenty of cash flow to re-accelerate R&D activities. It is also confident that it will find $2 billion in synergies. When the two businesses are combined, investors will get a company having multiple durable positions in eight franchises. The four growth franchises will be “immunology, hematological, oncology, medical aesthetics, and the central nervous system/neuroscience division.
AbbVie’s history of building leadership positions suggests that its growth rate will increase steadily over the next few years.
Valuation of ABBV
In addition to the high value, quality, and sentiment scores according to Stock Rover, ABBV stock has a fair value of $110. Investors should forecast revenue growth by at least 5% over the next five years.
With that revenue growth estimate, a five-year discounted cash flow growth exit model would suggest the stock is worth nearly $95 a share.
Chances are low that ABBV stock will revisit its $65 March low any time soon, unless markets sell off, which is unlikely since the Fed is pouring trillions to buy assets. The increased liquidity and lack of risks will encourage investors to buy proven companies like AbbVie.
Plus, after the Allergan deal closes, the company’s cash flow growth will be more than enough to pay down the debt.
Disclosure: As of this writing, the author did not hold a position in any of the aforementioned securities.
