Though AbbVie has misplaced patent exclusivity for its flagship drug, Humira, the corporate could quickly be greater and higher.
Pharmaceutical powerhouse AbbVie (ABBV 0.87%) has been a beast because it spun off from Abbott Laboratories in 2012. Over the previous decade, the inventory has averaged a dividend yield of three.5% whereas elevating its dividend by a median of 14% yearly. That sustained yield and development have made shareholders very comfortable.
For many of these years, AbbVie loved profitable success with Humira. Nevertheless, the corporate’s income has dipped since Humira misplaced patent exclusivity in 2023, and the inventory worth has solely elevated by 6% over the previous two years (not counting dividends).
Are AbbVie’s finest years behind it? Or is the corporate retooling for an additional stretch of prosperity? Let’s determine whether or not AbbVie is a purchase.
One step again, two steps ahead
Within the pharmaceutical enterprise, one residence run can basically construct an organization. AbbVie’s success with Humira is a textbook instance. Humira (adalimumab) is an immunosuppressant drug used to deal with a number of autoimmune illnesses, during which a affected person’s immune system assaults wholesome cells. It was a landmark product — the primary totally human monoclonal antibody authorised by the U.S. Meals and Drug Administration — and spent years among the many world’s top-selling medicine.
AbbVie’s gross sales of Humira topped $21.2 billion in 2022 earlier than it misplaced patent safety in 2023. As soon as patents expire, cheaper generic variations flood the market. International Humira gross sales had been $2.2 billion within the third quarter of 2024, a 36% decline 12 months over 12 months. That is an annualized tempo of $8.8 billion — a major drop from 2022 — and it is prone to proceed shrinking as Humira cedes market share.
A successful sports activities workforce sustains success by growing younger expertise to switch growing old stars. That is a superb analogy for AbbVie, which should regularly create new merchandise to switch therapies whose patents expire.
The nice information is that AbbVie has seemingly accomplished that with its new immunology medicine Rinvoq and Skyrizi. These medicine have seen sufficient success that administration has raised their long-term development projections. Collectively, Rinvoq and Skyrizi could surpass Humira’s finest 12 months by 2027:
Picture supply: AbbVie.
Humira created super sneakers to fill, however AbbVie could have accomplished it. Analysts are calling for roughly $63.5 billion in income in 2025, the primary time AbbVie would surpass $60 billion in gross sales. It seems just like the enterprise has shifted again into development mode.
Dividends might sluggish, however development prospects stay promising
As nice as Rinvoq and Skyrizi ought to be, Humira’s continued shrinkage will partially offset their development. Buyers who had been hoping for big dividend will increase could need to regulate their expectations. At the moment, AbbVie’s dividend payout ratio is 61% of 2024 earnings. That leaves loads of room for future will increase, however administration could need to retain some monetary flexibility. AbbVie remains to be carrying over $71 billion in long-term debt from an acquisition spree that included a $63 billion buy of Allergan, $10.1 billion for ImmunoGen, and $8.7 billion for Cerevel Therapeutics.
The corporate’s ratio of debt to EBITDA (earnings earlier than curiosity, taxes, depreciation, and amortization) is about 3.7. This isn’t a perilously excessive quantity of leverage, nevertheless it’s additionally not a scenario the place you need to tie up all of your income in dividend obligations. The dividend is important to AbbVie: The corporate is a Dividend King, with a decades-long historical past of yearly will increase from when it was nonetheless a part of Abbott Labs.
Buyers can most likely anticipate mid- to high-single-digit dividend development till the stability sheet is in higher form. Nonetheless, that is not so dangerous while you get a 3.6% beginning yield.
Is AbbVie a purchase?
The enterprise appears poised for long-term development, and the dividend is strong (even when development slows a bit). So is the inventory value shopping for right now?
AbbVie had a latest setback in November when it introduced poor section 2 research outcomes for emraclidine. The once-promising drug was a possible blockbuster for treating schizophrenia, and was the first motive for the $8.7 billion Cerevel Therapeutics deal. Analysts have revised their long-term development estimates decrease since November, however nonetheless imagine AbbVie is able to annualized long-term earnings development of 8%.
The ensuing decline within the share worth has made the inventory’s valuation look a bit extra engaging for my part. I might argue that the present stage is a good worth (maybe a bit low cost) for a dividend inventory of AbbVie’s yield and development outlook.
The underside line? AbbVie’s post-Humira prospects look much better than traders are giving it credit score for. The dividend is rock-solid and will proceed rising together with the share worth over the approaching years. That makes AbbVie a strong purchase right now.
Justin Pope has no place in any of the shares talked about. The Motley Idiot has positions in and recommends AbbVie and Abbott Laboratories. The Motley Idiot has a disclosure coverage.
