AbbVie Inc. (ABBV)

Equity
US
Healthcare

RISK

RETURN

Key risk factors

Negligible price volatility

Good trading liquidity

Resilient to price shocks

Key return factors

Strong margins and returns

Overvalued vs peers

Decent dividends

Company profileAbbVie Inc. discovers, develops, manufactures, and sells pharmaceuticals in the worldwide. The company offers HUMIRA, a therapy administered as an injection for autoimmune and intestinal Behçet's diseases; SKYRIZI to treat moderate to severe plaque psoriasis in adults; RINVOQ, a JAK inhibitor for the treatment of moderate to severe active rheumatoid arthritis in adult patients; IMBRUVICA to treat adult patients with chronic lymphocytic leukemia (CLL), small lymphocytic lymphoma (SLL), and VENCLEXTA, a BCL-2 inhibitor used to treat adults with CLL or SLL; and MAVYRET to treat patients with chronic HCV genotype 1-6 infection. It also provides CREON, a pancreatic enzyme therapy for exocrine pancreatic insufficiency; Synthroid used in the treatment of hypothyroidism; Linzess/Constella to treat irritable bowel syndrome with constipation and chronic idiopathic constipation; Lupron for the palliative treatment of advanced prostate cancer, endometriosis and central precocious puberty, and patients with anemia caused by uterine fibroids; and Botox therapeutic. In addition, the company offers ORILISSA, a nonpeptide small molecule gonadotropin-releasing hormone antagonist for women with moderate to severe endometriosis pain; Duopa and Duodopa, a levodopa-carbidopa intestinal gel to treat Parkinson's disease; Lumigan/Ganfort, a bimatoprost ophthalmic solution for the reduction of elevated intraocular pressure (IOP) in patients with open angle glaucoma (OAG) or ocular hypertension; Ubrelvy to treat migraine with or without aura in adults; Alphagan/ Combigan, an alpha-adrenergic receptor agonist for the reduction of IOP in patients with OAG; and Restasis, a calcineurin inhibitor immunosuppressant to increase tear production, as well as other eye care products. AbbVie Inc. has a research collaboration with Dragonfly Therapeutics, Inc. The company was incorporated in 2012 and is headquartered in North Chicago, Illinois.

Valuation: Overvalued

Multiple

TTM

NTM

P/E

46.40

35.80

PEG

3.20

P/B

34.70

17.60

P/S

5.10

5.00

P/FCF

12.70

11.50

EV/EBITDA

18.10

16.50

Based on key historical and expected multiples, the stock is overvalued relative to its peers. In particular, the stock is overpriced on P/E, of fair value on EV/EBITDA, and undervalued on P/FCF.

Performance: Mixed

The stock's performance has been mixed in the past six months, with growth following a decline. There is no clear price trend compared to its global peers from the same sector and industry (as shown above). The stock has outperformed this peer group by 9ppts over past six months and grown 8ppts slower in the past month. This is largely true for peers from the same country and sector. With respect to the stock's valuation against its peers, its overall price performance is neutral.

Analyst view: Neutral

The average target price is 174 and suggests 11% upside potential. Usually, this means a HOLD recommendation among investment firms. This neutral recommendation suggests no significant price movement, up or down, in the next 12 months. The most optimistic analyst has a target price of 207.0. This translates into 32% upside potential in the best case. On the other hand, the most pessimistic analyst has a target price of 161.0. This suggests 3% upside potential. Even the most pessimistic analyst believes there will be stock growth.

Profitability: Strong

RoE

AbbVie Inc. reported a return on equity (RoE) of 65.3% in the last 12 months, up from 35.2% in FY23. The market consensus projects an RoE of 372.6% in FY24, again ahead of its peers.

RoA

Another important profitability metric, return on assets (RoA), amounted to 4.2% in the last 12 months, an increase from 3.6% in FY23. The market analysts predict that RoA will be 27.6% in FY24, more robust than its peers in this period.

RoCE

In the last 12 months, the return on capital employed (RoCE) grew to 5.9%, below the peers. The consensus estimate for FY24 for RoCE is 92.0%, however, this time ahead of the peers.

Net margin

EBITDA margin

Historically, ABBV has reported strong net margins compared to its global peers. Specifically, in the last 12 months, this metric equalled 11.0%, a growth from 9.0% in FY23. The company has reported strong EBITDA margins compared to its global peers in recent years. EBITDA margin amounted to 33.9% in the last 12 months, up from 33.7% in FY23.

RoIC / WACC = 1.6(good value creation)

The ratio of return on invested capital (RoIC) to the weighted average cost of capital (WACC) has been 1.6 in the past several years. This ratio implies a good shareholder value creation.

Growth: Poor

Revenue

EBITDA

EPS

Free cash flow

ABBV reported revenue of USD 54 403mn in the last 12 months, up 0% from FY23. The dynamics of cash flow, as measure by free cash flow (FCF), were rather similar. EPS grew 23% from FY23 to USD 3.37. Market expects EPS to reach USD 11.25 in FY24.Revenue has been growing very slowly over the past several years (middle negative), while EBITDA has declined in recent years (negative). This all contributed to slow EPS growth (neutral). Free cash flow, at the same time, has performed better than EBITDA would suggest, and has been growing slowly. We emphasize the highly volatile dynamics of EPS and EBITDA.

Dividends: Decent

Dividend paid

Dividend yield

The company has a track record of regular dividend payments. It has paid dividends in each of the past ten years. Dividend per share (DPS) has grown yearly, and there is an evident trend. In the past 12 months, the dividend yield has been strong and significantly above its peers. The company distributes nearly all its profit as dividends (payout ratio above 90%, a negative factor). It will not be easy to sustain such an extreme payout ratio. It may also indicate a company's lack of profitable growth opportunities, which suggests doubtful prospects. On average, the company pays dividends quarterly, which may appeal to investors valuing a regular income stream.

Default risk: Moderate

The risk of default is moderate. We note robust profitability and solid return on capital, among the positive credit factors. Among the negative credit factors, we point to slow historical revenue growth, excessive margin volatility, poor working capital management, and an unfavourable capital structure.

Volatility: Negligible

In normal market circumstances, ABBV is not volatile. Put differently, without outstanding market volatility or shocking company news, the stock's price will stay within a narrow range. The stock's losses on its worst days (less than 1-5% of the time) will range from very low to negligible.

Stress-test: Resilient

In highly turbulent market conditions, ABBV is not overly volatile. In other words, the stock will fall less than the index in times of extreme market volatility or shocking company news. Standalone, the worst-day losses (less than 1% of the time) will likely be low.

Selling difficulty: Low

ABBV boasts high trading liquidity. The average private investor can sell his common position in the stock immediately. Liquidity is usually very stable and remains mildly favourable on the days with the lowest activity. The trading volume mostly stays the same even under highly turbulent market conditions.

Country risk: Very low

The institutional, legal, and compliance risks associated with the company's country are minimal. In combination with stringent business standards, shareholder rights are very highly protected.

Other risks: Negligible

No other major risks have been identified.