AbbVie (ABBV) is a developer, manufacturer, and marketer of prescription drugs in the U.S. and internationally.
AbbVie stock has gained more than 29% over the past year, yet the stock remains undervalued. Management is successfully bringing new revenue streams to the company that will replace the highly-successful Humira franchise as biosimilars hit the market. I believe AbbVie stock has further to rise in 2022, and I am bullish on it.
Share Price Discount
It seems that AbbVie is always under some kind of pressure. This pressure increases the risk and keeps the share price low and the dividend yield high. First, regulatory pressure is a constant worry. Congress would like to lower prescription drug prices but doesn’t seem to agree on a mechanism for doing this.
The fact is that drug development costs companies billions of dollars with no promise that clinical trials will be successful or that the drug will eventually be approved and sold. The payoff must be worth it to the company and its shareholders to invest in drug development. This means that when a company develops a blockbuster drug, it has the right to keep it under patent for a certain period.
Another pressure that AbbVie faces is competition from generic drugs and biosimilars when patents expire. This is the case with Humira, where biosimilars are already available in Europe and coming to the U.S. in 2023. AbbVie’s sales from Humira, the former cornerstone of the company, are expected to fall drastically.
With this in mind, management made the Allergan acquisition in 2019 and is now budgeting over $15 billion in sales from Rinvoq and Skyrizi by 2025. This should shore up the revenue stream nicely and allow for continued high profitability for AbbVie.
Buy and Hold for the Dividend and Valuation
AbbVie has recently released full-year 2021 earnings, and the results were terrific. The company has pulled in $56 billion in top-line sales after producing $46 billion in Fiscal 2020. Diluted EPS for 2021 reached $6.45 on a GAAP basis. AbbVie is a bargain with a forward price-to-earnings (P/E) ratio under 10; however, this may not last. The stock has gained over 22% over the past six months.
The biggest draw for AbbVie shareholders is the dividend. The current yield is a healthy 4%, and the current payout is $1.41 quarterly. The dividend is relatively safe, with a payout ratio of just under 45%. In addition, the dividend has grown for the last eight years in a row. Occasionally AbbVie will dip in share price, usually due to regulatory saber-rattling, and timely investors can snag a 5% yield.
Wall Street’s Take
Turning to Wall Street, analysts are extremely bullish on AbbVie’s stock, with a Strong Buy consensus rating based on 15 Buys, four Holds, and no Sell ratings. The lack of sell ratings shows that analysts are convinced that AbbVie will successfully replace the lost Humira revenues in the coming years.
The average AbbVie price target of $148.29 implies 5.4% upside potential.
AbbVie in 2022
AbbVie stock has broken out recently, moving from under $110 per share to over $140 per share. This is because investors and analysts are becoming increasingly confident that the company will replace the upcoming lost revenue from Humira. Rinvoq and Skyrizi look like very successful drugs. The stock currently trades at a reasonable valuation, and the dividend yield is top-notch. Investors can expect AbbVie’s total return to be positive again in 2022.
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