High-yield, deep-value AbbVie fell off the patent cliff and lived

Key Points

• AbbVie Inc. posted a solid quarter and raised its dividend. 
• Sales of Humira are slow but offset by a robust growth engine centered on Skyrizi and Rinvoq. 
• The yield is attractive at 4.7% and is a growing distribution. 

Shares of AbbVie Inc. NYSE: ABBV have been under pressure for nearly two years because of mounting fears about the patent cliff. The patent cliff impacted the company’s results but has done nothing to change its financial health, position, long-term outlook or ability to deliver value for investors. The stock discounted to deep-value levels, paying about a 4.7% dividend yield, near the top of the historical range, and offers an opportunity for income investors. 

AbbVie’s growth machine solid; Humira sales still strong

Humira is a concern for AbbVie and its investors, but the signals from the data suggest the worst-case scenario is far from reality. Humira sales hit a little more than 36% for the quarter, which is hundreds of basis points less than expected and offset by strength in the non-Humira growth engine. 

Skyrizi, Rinvoq, Botox and Vraylar all posted significant growth. The pillars of the engine, Skyrizi and Rinvoq, have reached blockbuster status on a 52% and 60% year-over-year (YOY) gain. Skyrizi is at a double-blockbuster level with sales of $2.126 billion and should grow 7x before topping out. Humira still brings in over $3.5 billion and will be a money-maker long into the future. 

So, AbbVie posted a 6% decline in YOY revenue, but it beat the Marketbeat.com consensus estimate by 160 basis points and is compounded by margin strength. 

Immunology, which includes Humira, contracted by 11.3%, while oncology declined by 8.4%. Neurology, which includes expanding uses of Botox Therapeutic and Vraylar, grew by 22.1%. The aesthetic segment, including Botox Cosmetic, contracted by 5%. 

Margin contracted compared to last year, but not as much as expected, including unexpected impairments. The company reported $2.95 in adjusted EPS, down 19.4% compared to last year, but beat consensus by 270 basis points, including the four-cent impairment. 

The best news of all is the guidance. AbbVie raised its guidance for adjusted EPS in 2023 to a minimum of $11.19 compared to the prior max of $11.06 and the consensus analyst estimate of $11.05. The company also lifted the floor for earnings by 30 cents to $11, or just shy of consensus. The 2024 guidance is weak but still solid and may be cautious given the trends in 2023. 

The analysts leading AbbVie’s market higher 

As mixed as the analysts' AbbVie activity this year, the takeaway from the data is bullish for stock prices. The consensus sentiment slipped from "moderate buy" to "hold/moderate buy," but the price target trends higher.

The price target is up compared to last year, last quarter and last month and will likely trend higher now that results are in. The consensus target of $166 implies a 15% upside for this Dividend Aristocrat, and the high end of the range is another 18% above that. Moving to the consensus target puts the market in reach of the all-time high; moving to the analysts' high targets puts the market 10% above the all-time high. 

The company shows a mixed technical outlook. The market is trapped in a range and heading lower following the Q3 results. The caveat is that a bottom for the action is near and may be confirmed within the next few days to weeks. In this scenario, ABBV will confirm support or rebound from near $135 and continue consolidating within its range until the market moves higher. If not, ABBV could move to $120 or lower, presenting a deeper value and higher yield.