ABBVIE Stockanalysis and Valuation

INTRODUCTION

Abbvie is an american bio-pharmaceutical company founded in 2013. It originated as a spin-off of Abbott Laboratories. According to Genetic Engineering & Biotechnology News Abbvie produced and sold the best-selling drug of the world, Humira. But here there is a problem, because as can be seen below this product makes a huge share of sales and the patent for it already expires in 2023. Taking this into account, is Abbvie at a good price right now? And how is management reacting to the development? Here I will discuss current valuation and my thoughts on Abbvie in general:


BUSINESS

ABBVIE's 2020 revenue was composed as follows:

Sales per Business:

Sales per Region:


Source: https://www.marketscreener.com/


GROWTH

The Growth metrics are looking sick:

5Y. Average Revenue Growth (YoY): 13%

5Y. Average EBITDA Growth (YoY): 18%

5Y. Average EBIT Growth (YoY): 14%

5Y. Average Diluted EPS Growth (YoY): 34%


Here are the past growth values and the future forecasts in one diagram:

As you can see there is a decline estimated in 2023, due to Humira's patent expiration.

Still I think that the drop isn't that bad, when thinking that currently Humira is approx. 37% of the revenue. Analysts appear to believe Abbvie will be able to diversify its portfolio by 2023. That's exactly what I'm thinking too! In early 2020 Abbvie acquired Allergan for $63 billion, which is a big step in the right direction!

Source: https://www.marketscreener.com/ and https://seekingalpha.com/


DIVIDEND

Current Yield (April 30.): 4,7%

Payout Ratio: 42%

5Y. Average Growth Rate: 18%

Dividend Growth for 49 Years (seekingalpha is showing 8 years, but since Abbvie was spin-off of Abbott Laboratories in 2013, i take 49 years)

Average Dividend Yield last 10Y: 3,8%


DEBT

For me to verify that the company isn’t taking too much debt, I like to see that the debt is smaller than 4 times EBIT. For Abbvie this means:

DEBT < 4 x EBIT = 77,61 Mrd. USD < 5,85 Mrd. USD


The high level of debt comes from the acquisition already mentioned above and from smaller other acquisitions in order to broaden the company's business.

The debt clearly represents a disadvantage of this stock.


VALUATION (Current price: 111 USD)

The average Dividend Yield for the last 10 Years was around 3,8%. Given that, the fair price for ABBV, only looking at the dividend would be around 130 USD. Which means there is a margin of safety of around 17% right now.

On the Earnings side, we got an average PE of 12 the last 10 years. Right now, the stock is trading for a PE of around 10, which means, the stock is ~20% undervalued.

Are we now looking at the Earnings Estimates for the end of 2024 and also factor in the average PE of about 12 we get a Target Stock Price of around 152 USD. Which would mean as much as a total return of approx. 12,5% p.a. (considering dividends). ( Yield on cost in 2024 would be 5,1% btw! ;) )


CONCLUSION

Even with considering a pretty sharp decline in earnings in 2023 we get a anticipated return of ~12,5% p.a. The management seems to know what is coming and is doing the right steps to avoid big damage. With around 20% of margin of safety right now, I rate ABBV as a BUY and I will straight up log into my broker to stock up my existing position! :)


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