AbbVie Stock is Rising on the Heels of a Strong Earnings Report

AbbVie (NYSE:ABBV) rewarded investors for boosting the company’s stock price with an earnings report that beat on both the top line and bottom line. The company’s revenue came in at $8.70 billion and the adjusted earnings per share (EPS) came in at $2.21.Heading into earnings, analysts were calling for earnings per share (EPS) of $2.19 on revenue of $8.68 billion.

The beat on both the top line and bottom line made it a clean sweep for AbbVie in 2019. Investors were hoping to get clarity on the future direction of AbbVie as the company continues to absorb Allergen into their ecosystem.

There was some speculation that the stock’s recent climb was due to increasing revenue from one of its drugs being used to treat the coronavirus. However, any bump from that will be short lived. AbbVie is a large company and the drug is not the same as a vaccine.

The real story for AbbVie continues to be about two things. First, how well the company will assimilate Allergen and second how it will successfully pivot from its flagship drug Humira which has already seen its patents expire in Europe.

AbbVie is no Longer Just a Humira Story

I’ve been bullish on AbbVie since the company announced their acquisition of Allergan. Yes, the company paid a premium price of $63 billion to acquire Allergan, particularly since Allergan needed the merger more than AbbVie did. But AbbVie has positioned the merger as an opportunity to generate additional growth that both firms would struggle to find on their own.

But the acquisition of Allergan is not the company’s only strategy for blunting the effect of expiring Humira patents. The company also reported that it can file a new drug application (NDA) for Rinvoq, an immunology drug for the treatment of psoriatic arthritis.

Although the results of the recent trial were not as good as AbbVie would have liked, it still represents a potential replacement for Humira in some cases.

But Humira is Not Going Away in the United States … Yet

Some analysts mistakenly attributed the rise in AbbVie stock in 2019 exclusively to its acquisition of Allergen. But that only tells part of the story.

2019 did not start off well for ABBV stock. The price was dropping amidst concerns about expiring patents for its popular drug, Humira. The drug, which doctors prescribe to treat a range of conditions including rheumatoid arthritis, chronic plaque psoriasis and Crohn’s disease, saw its patent expire in Europe at the end of 2018.

For the unfamiliar, a drug like Humira is a blessing and a burden for a company like AbbVie. The blessing is that when a drug is first released it enjoys patent protection. However, when those patents expire, the company typically sees its revenue for that drug decline sharply as bio-similar (i.e. generic) equivalents enter the market.

In the case of Humira, AbbVie saw European sales decline by 23% in the first quarter. However, in the United States, Humira sales grew 7% to $3.2 billion.

So it’s not surprising that AbbVie spent so much time and money to ensure Humira could extend its patents in the United States for as long as possible. In May, the company finally reached a resolution that will keep Humira patent protected in the United States until 2023. In the pharmaceutical industry that is not an eternity, but it does buy AbbVie important time.

Technical Indicators are Favorable

In October of 2019, AbbVie stock crossed above its 200-day moving average. What made the move particularly bullish was that in September, ABBV had crossed over its 50-day moving average. In mid-January, there was some concern as the stock price crossed back below its 50-day moving average However, the stock has since rebounded and just recently crossed back over the 50-day moving average. This may be a signal that the momentary dip was just some institutional investors positioning the stock price for the next leg up.

With an RSI of just over 56, ABBV stock looks like it still has some momentum to go higher. The favorable earnings report should help to provide the catalyst.

And AbbVie Remains a Dividend Darling

AbbVie is a member of the exclusive Dividend Aristocrat club. This means it has increased its dividend for at least 25 consecutive years. The company already cleared at least one possible objection to the Allergan deal by issuing a dividend increase of 11 cents in November 2019. There was some initial concern that AbbVie’s 46-year string would come to an end as the company absorbed Allergen.

Of course, any time a company issues a dividend it can be a signal to investors that it has muted expectations for growth. However, risk is built into the fabric of many pharmaceutical companies. The dividend is a good way for AbbVie to both reward and protect its shareholders.