AbbVie Trades At a Discount

This column has long been a fan of AbbVie (NYSE: ABBV). In early February, we struck a bullish tone on the mega-cap pharma after they crushed earnings. And in November, called them a ‘forever stock’. A lot has happened in the meantime. The spread of coronavirus, the shutting down of the economy, and the race for a cure have dominated headlines for the past two months. Even as their scientists worked on a COVID-19 treatment, AbbVie’s stock fell more than 30% from those post-earnings highs we’d been so bullish about. But after close to a 40% rally in the past month, it looks like investors are falling for AbbVie all over again.

Confirming this recent move, RBC Capital Markets were out with an upgrade to the stock on Monday and moved AbbVie from a Sector Perform to Outperform rating. Their price target also moved north, from $79, close to where the stock closed on Tuesday, up to $93. Their analyst, Randall Stanicky, believes that the stock took too much of a haircut with the overall market selloff in February and March and is well-positioned to bounce back stronger than most when “the market ultimately shifts from defensive to offensive positioning”.

Attractive Dividend Yield

He makes a compelling argument when you look at the charts. From February 12th through Tuesday, AbbVie’s shares are down 18%. However, the benchmark biotech index IBB, is only down -0.4%. It poses an attractive opportunity to buy into a company from both a growth and value perspective. AbbVie pays a sector high dividend yield of close to 6% and has a 20% five-year growth rate on their payout to shareholders.

Management have also been keen to position and prepare for long term success. The big news in the pharma industry before coronavirus was AbbVie’s $63 billion acquisition of Allergan (NYSE: AGN), a deal which is expected to close next month. This was a music to the bull’s ears as concerns had been growing about the company’s dependence on Humira for their sales.

Well Positioned for Long Term

Humira is a treatment for the likes of psoriasis, arthritis and Crohn’s disease and has been AbbVie’s blockbuster in recent years, accounting for close to 60% of all their sales in 2019. It’s understandable that investors would be nervous about the company’s reliance on one single drug, particularly as the US patent is due to expire in 2023. However, with the acquisition of Allergan and their own internal work, AbbVie looks set to have an impressive drug pipeline that many other pharma names can only dream of. One example of the new weapon soon to join their arsenal is Botox, the injection we’ve all heard used for cosmetic treatments.

In line with the bullish expectations of the acquisition, AbbVie’s CEO, Richard Gonzalez, said at the time the acquisition was announced, ““you look at [the drugs] Skyrizi, Rinvoq, Venclexta, Imbruvica. Those all have significant growth opportunities ahead of them on the AbbVie side. And then you look at the Allergan side, you have Vraylar. This is a product that is about an $850 million product. I think the last numbers I saw showed it was growing at about 70%.”

There’s plenty going on for investors to be excited about and with the stock trading at October 2019 levels and September 2017 levels, you can’t help but feel there’s a good deal on the table. This column has written bullish pieces on AbbVie in the past and it’s likely we’ll be writing bullish pieces on them well into the future.