The Company in a Nutshell
- Previously a part of ABT, AbbVie is a dividend aristocrat.
- ABBV’s ability to develop new drugs is central to its stock valuation.
- ABBV acquired Allergan (AGN) for $63B in 2020 to diversify its business and enter the cosmetics market.
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What the CEO said: What we say:Investment Thesis
ABBV’s dependence on Humira, a tumor necrosis factor blocker that reduces the effects of inflammation, has been reduced over the past few years. Humira represented more than 50% of sales in 2019, now down to 31% in 2023. New drugs in the company’s immunology portfolio, such as Skyrizi and Rinvoq, are accelerating more aggressive growth. ABBV expects Rinvoq and Skyrizi to contribute over $27B in sales by 2027. They are meant to replace Humira sales as all patents have expired. ABBV’s growth is also fueled by its hematologic oncology portfolio. In addition, we see promising growth from its psoriasis and rheumatoid arthritis drugs. The company’s primary reason for acquiring Allergan was to diversify its revenue sources and find more diverse ways of extending its patents. Botox continues to be a growth driver and its formula is protected by a trademark rather than a patent. For 2024, ABBV expects adjusted EPS to be between $11.05 and $11.25.Dividend Triangle
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Potential Risks
As Humira’s patent expiration (2023 for the U.S.) is affecting ABBV’s sales, we are reminded of the pivotal role of patents and competition in the industry. The company expects a 37% U.S. decline in Humira sales for 2023, followed by another decline in 2024. So far, Humira is doing better than expected, but it’s not enough to keep revenue and EPS growing. Patents allow players to reap the benefits of billions invested in R&D, and while ABBV may be one discovery away from making billions, the same goes for many of their competitors. For instance, competitor Pfizer could impact ABBV’s sales expectations. Now, ABBV must convince the market that its pipeline is worthy of their investment despite Humira’s patent expiration, and a few more quarters may be necessary for this. In the meantime, while most of ABBV’s competitors spend a large percentage of their sales in R&D (in the high teens), ABBV is lagging with 13% of sales. This could come back to haunt them in the future. ABBV also increased its leverage through the acquisition of Allergan. Failures in the pipeline, litigation, or even integration complications with Allergan, are risks that ABBV could face in the future.
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Dividend Growth Perspective
ABBV has been generous with its shareholders as of late. The company has successfully increased its dividend since 1973 (including Abbott’s history). Management has more than doubled its payout in the past 5 years, in addition to buying back shares. With a yield of 4%, it is a great candidate for any retirement portfolio. The most recent dividend increase announcements in 2021 (+8.5%), in 2022 (+5%) and 2023 (+4.7%) demonstrate strong confidence from management. However, we can see a slowdown (from double-digit increases) in the dividend growth policy.
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(Data for `ddm_recent_annual_dividend` field are missing to build DDM tables)
Video Tutorial: How to Read the Stock Cards DDM Valuation
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- All financial metrics are updated weekly.
- The DSR PRO rating and Dividend Safety Score are updated quarterly.
- The analysis (investment thesis, risk potential, dividend growth perspective and DDM calculation) is reviewed every 6 months.
- The PDF format includes only comments (no metrics) and is reviewed every 6 months.