Stock In The Spotlight: AbbVie Inc.

A strong Dividend Growth stock that has increased their dividend an annual average of 21% per year the past 5 years and appears undervalued

Good Morning Seekers,

It is time for our weekly Stock in the Spotlight series. Today I will cover one of my favorite Dividend Growth stocks over the years, Abbvie Inc (ABBV).

Year-to-date shares of ABBV are up 6.5%. ABBV is a pharmaceutical company that developed the #1 selling drug in the world, Humira. The drug saw its European patents expire a few years ago, but the US patent is due to expire in 2023, so the clock is ticking.

The company maintains a strong portfolio of new drugs and a loaded pipeline.

Last quarter the company closed on its big acquisition of Botox investor Allergan. This acquisition will lead to $2 billion in synergies once the two companies get acclimated to one another.

In addition, this acquisition will boost sales and diversify an already strong portfolio of product offerings and pipeline.

Let’s take a look at how the company has been performing.

ABBV Q2 Earnings

It was an interesting quarter for the company and not one you could take at face value due to all the noise that went into the financials because of the acquisition.

For starters, on the face it appears Operating Income tumbled, but in reality it was actually quite good. Many of the costs were acquisition costs related to Allergan during the quarter. The company provided an adjusted reconciliation, which shows an adjusted Operating Income of $4.9 million, which is a 44% increase from prior year. This equates to an adjusted operating margin of 47%, which was 600 basis points higher than previous year.

So in reality, the company had a GREAT quarter.

Humira sales for the quarter were down 0.7% overall, but up 5% in the US. Humira sales accounted for 46% of total sales during the quarter, the lowest sales mix for the product in recent history. The reason for this was due to continued declines in Europe for Humira, but also the rise of newer drugs Imbruvica, Skyrizi, and Rinvoq. These three drugs saw sales increase 17% for Imbruvica and 100% for Skyrizi and Rinvoq, which were not available during Q2 2019.

Looking Ahead

The company had a solid quarter given the backdrop of a global economy going through a pandemic. The company estimated COVID to have a net unfavorable impact on revenues of $900 million. Moving forward, the company continues to see patient stabilization return, which is a positive side and in-line with what I would expect as the economy slowly continues to re-open.

Skyrizi and Rinvoq continue to grow for the company plus they are still going through testing for other diseases in which the drug could be used for which will only expand the possible uses for each of the drugs.

Due to the company’s strong cash flows, management has projected to pay down $15 billion to $18 billion in debt by the end of 2021, of which $7 billion has already been paid.

Looking ahead, as an ABBV investor, the question on everyone’s mind is “what happens after Humira?” That is a very valid question, but one that is being answered today and will continue to do so. The growth in the new drugs continues to be ahead of expectations, plus pipeline drugs that are expected to reach the market soon. For years ABBV has only been about Humira as it accounted for 70% of revenues, but now the company will have 6-7 drugs that have the ability to take on the task all together, and that is a major positive.

Valuation

Shares of ABBV appear to be very cheap if you ask me.

The company trades at a forward price to earnings multiple of 7.7x. That is roughly HALF the company’s 5yr avg of 14x. In terms of P/S, the company trades at 4.1x, which again is below their 5yr avg of 4.5x.

In terms of the dividend, the company offers a generous 5% dividend yield, which is above the 5yr avg yield of 3.9%.

Not only do you get a high-yield, but over the past 5 years, the company has increased the dividend an average of 21% per year. That is incredible growth year in and year out. The stock has moved higher nearly 50% in those 5 years as well, making for a solid Dividend Growth play.

I believe shares of ABBV to be a solid long-term addition to a portfolio. I added to shares to my portfolio last week and if the stock falls below $92 I will most likely look to add more.

Rating = STRONG BUY

Again, this is my opinion and you should perform your due diligence before making any investment.