Dividend Aristocrats In Focus: AbbVie

Up to date on April twenty third, 2021 by Bob Ciura

At Certain Dividend, we imagine long-term traders ought to deal with the highest-quality dividend development shares. Broadly talking, these are firms with lengthy histories of elevating their dividends, and the aggressive benefits and development potential to gas continued dividend development within the years forward.

Subsequently, we are inclined to steer traders towards the Dividend Aristocrats, a bunch of 65 firms within the S&P 500 Index, with 25+ consecutive years of dividend will increase. We have now compiled an entire checklist of all Dividend Aristocrats, together with related monetary metrics equivalent to dividend yields and price-to-earnings ratios.

You possibly can obtain your free checklist of all 65 Dividend Aristocrats by clicking on the hyperlink under:

We assessment every of the 65 Dividend Aristocrats yearly. The following inventory to be reviewed on this 12 months’s version is AbbVie (ABBV).

AbbVie is coming off a multi-year interval of fantastic development, because of the huge success of its flagship product Humira. There are questions relating to the corporate’s future development as a result of rising competitors to Humira within the U.S. and Europe, however the firm has a plan to proceed its spectacular development.

This text will focus on AbbVie’s enterprise mannequin, development potential, and why we price the inventory as a powerful purchase for dividend development traders.

Enterprise Overview

AbbVie is a world pharmaceutical large. It has a $197 billion market capitalization, that means it’s on the cusp of turning into a mega-cap inventory.

AbbVie started buying and selling as an impartial firm in 2013, after it was spun off from fellow pharmaceutical Dividend Aristocrat, Abbott Laboratories (ABT).

AbbVie has generated robust development because the spin-off. In accordance with AbbVie, it grew income and adjusted EPS development by 13.5% and 18.8% respectively, annually from 2013-2020.

Immediately, AbbVie focuses on one most important enterprise section—prescription drugs. It focuses on just a few key remedy areas, together with immunology, oncology, and ladies’s well being. The corporate has seen glorious development because it was spun off from Abbott. AbbVie now generates annual income above $45 billion.

For the reason that spin-off from Abbott, AbbVie has produced glorious development, largely as a result of its flagship product Humira. Humira is a multi-purpose drug, and had been the top-selling drug on the planet. The problem for AbbVie is that Humira is now dealing with biosimilar competitors in Europe, which has had a noticeable influence on the corporate.

Humira will lose patent safety within the U.S. in 2023. Even so, AbbVie stays an enormous within the healthcare sector, with a big and diversified product portfolio.

Supply: Investor Presentation

AbbVie reported its fourth-quarter earnings outcomes on February third. Quarterly income of $13.9 billion elevated 59% year-over-year, and was primarily because of the acquisition of Allergan. Earnings-per-share elevated 32% for the fourth quarter. For the complete 12 months, income elevated 38% whereas adjusted earnings-per-share elevated 18% to $10.56.

The corporate issued robust steerage for 2021 which requires adjusted earnings-per-share in a spread of $12.32 to $12.52. On the midpoint of firm steerage, adjusted EPS are anticipated to extend 18% for 2021.

Even with Humira’s U.S. patent exclusivity set to run out in two years, the corporate has a plan to proceed producing long-term development.

Development Prospects

The key danger for world pharmaceutical producers is patent loss. When a specific drug loses patent, the market is often flooded with competitors, particularly for the world’s top-selling merchandise.

For AbbVie, its largest danger is the competitors about to hit its flagship drug Humira, a multi-purpose drug that’s used to deal with a wide range of circumstances. A few of these embody rheumatoid arthritis, plaque psoriasis, Crohn’s illness, ulcerative colitis, and extra.

Humira at one level generated over half of AbbVie’s annual gross sales. Lack of patent exclusivity is a big overhang–AbbVie expects its complete gross sales will decline in 2023 consequently. On the similar time, AbbVie additionally expects to return to gross sales development in 2024.

Thankfully, the corporate ready for the lack of patent exclusivity on Humira, by investing closely in new merchandise in addition to acquisitions to spice up its development. For instance, AbbVie has seen robust development from Imbruvica, which generated a 13.7% improve in gross sales for 2020.

Rinvoq and Skyrizi are two extra merchandise that characterize long-term development catalysts.

Supply: Investor Presentation

AbbVie additionally accomplished the $63 billion acquisition of Allergan. Allergan’s flagship product is Botox, which diversifies AbbVie’s portfolio with publicity to world aesthetics. In 2020, AbbVie’s aesthetics portfolio generated income of $2.59 billion.

Share buybacks will even add to AbbVie’s future earnings development. For the reason that firm is very worthwhile and generates vital free money circulate, it may well afford to put money into development and likewise return money to shareholders. In all, we count on 3% EPS development for AbbVie, reflecting the steep patent cliff dealing with Humira.

Aggressive Benefits & Recession Efficiency

A very powerful aggressive benefit for AbbVie, and any pharmaceutical firm, is its patent portfolio. Pharmaceutical giants have to spend closely to innovate new medicine and therapies, when one in every of their blockbusters loses patent safety.

Analysis and improvement expense totaled $6.5 billion in 2020. AbbVie has a number of development alternatives to switch Humira, significantly within the therapeutic areas of immunology, hematology, and neuroscience.

AbbVie was not a standalone firm over the past monetary disaster, so there is no such thing as a recession monitor document, however since sick folks require remedy whether or not the financial system is powerful or not, it’s extremely possible that AbbVie would proceed to carry out properly throughout a recession.

AbbVie’s earnings are more likely to decline considerably in a recession, however the dividend ought to stay safe. AbbVie has a projected dividend payout ratio of 42% for 2021.

Valuation & Anticipated Returns

AbbVie is predicted to generate adjusted EPS of $12.42 for 2021, on the midpoint of steerage. At this EPS degree, the inventory is at present buying and selling for a price-to-earnings ratio of simply 9.0.

AbbVie is valued significantly under the S&P 500 Index. As well as, AbbVie is undervalued as we speak when in comparison with its historic common. Our honest worth estimate for AbbVie is a price-to-earnings ratio of 10.0, a slight discount from our prior P/E goal as a result of rising leverage from the Allergan acquisition.

Nonetheless, we view AbbVie as undervalued. An increasing P/E a number of might increase shareholder returns by roughly 2.1% per 12 months over the following 5 years.

As well as, we count on annual earnings development of three% by means of 2026. Lastly, the inventory has a present dividend yield of 4.7%. In complete, we count on annual returns of 9.8% per 12 months over the following 5 years, making AbbVie inventory a purchase.

Ultimate Ideas

AbbVie is a really high-quality enterprise, with a powerful pharmaceutical pipeline and development potential. Additionally it is a shareholder-friendly firm that returns extra money circulate to traders by means of inventory buybacks and dividends.

AbbVie faces a big problem in changing misplaced Humira gross sales because it faces competitors within the U.S. and Europe. Thankfully, the corporate has ready for this with heavy R&D investments. From this, it has created a big portfolio of latest merchandise that ought to preserve AbbVie’s development intact. And, AbbVie will have the ability to generate extra development from the deliberate acquisition of Allergan.

With anticipated returns of almost 10% per 12 months going ahead, together with a 4.7% yield, we imagine AbbVie is a purchase for long-term worth traders and revenue traders.