Updated: Jan 30, 2021
Previous Close: $104.19 (11/25)
ABBVIE INC. also referred to as AbbVie, is a biopharmaceutical company that researches, creates, manufactures, and distributes medicine throughout North America and the European Union. The medications distributed primarily include therapeutics used to treat many complex or serious diseases. AbbVie has created and acquired brands such as Humira, AndroGel, and more recently, Allergan plc (see a full list on their website), to ensure that they maintain proper market share in the industry. What initially piqued my interest in AbbVie was that its price-to-earnings ratio was lower than the industry’s average. As most investors should know, when analyzing stocks to potentially add to one's portfolio, the P/E ratio, especially when it is lower than other stocks’ P/E ratios within the same sector, can be used as a metric that indicates either the company is currently undervalued or that the company is doing exceptionally well compared to past trends and earnings. In the case of AbbVie, its price-to-earnings ratio was 20.98 while the industry average was 27.24.
What do the numbers say?
In AbbVie’s most recent 10-Q for 2020 Q3, they touted a positive net income and operating cash flow which are great signs of the company's health. Again, this is a great reference point to the previously mentioned low P/E ratio. Operating cash flows for AbbVie grew compared to the prior year and earnings per share grew 2% from last year’s Q3. The trailing nine months EPS and net income did see decreases due to a weak Q2 which should not surprise anyone who has been tracking economic data and stock market news since March. It should also be noted that similar news also may be the reason the industry’s average has been inflated. For example, companies such as Pfizer and Moderna are in this same sector and have seen increases in their market capitalization due to the probability that they may come out with a vaccine for COVID-19. Though there have been no reports of AbbVie making any successful attempts at a vaccine, they have engaged in partnerships in numerous areas surrounding treatment and care for those infected with COVID-19.
Why Should Anyone Care?
Due to its dependable income, AbbVie has been able to astoundingly increase dividend yield year-over-year for the past 48 years. According to Dividend.com, it has annualized dividend growths of 19.22%, 87.72%, and 157.83% over the past one, three, and five years. They also have been able to increase dividends during the pandemic, an extraordinary feat in and of itself when most other companies have been reducing, suspending, or even canceling their dividends. This past year, AbbVie has paid out $4.72 which is nearly a 5% yield seeing as the price has stayed within the $100 per share range.
And the Catch?
Like every other company, AbbVie is subject to the inherent risks that it needs to manage. An entire list of risk factors can be found here on it’s 2019 10-K report. Additionally, to name a few major risk factors specific to its line of business: AbbVie is prone to risk from loss or expiration of patents, unsuccessful research and development efforts, dependence on a few, key suppliers, and future lawsuits. While each of the listed factors, and those not listed, would be unexpected, investors should always consider that they may cause significant and material negative impacts to earnings and reduce the share price along with the amount of dividends paid to investors. AbbVie again frequently acquires other companies within the sector which is a cash-heavy process and this may also reduce cash to levels at which they could not afford to pay out their usual dividend.
AbbVie is the type of stock one would put into their retirement fund and continually add capital to the position with every-other paycheck or as a source of spending cash similar to an annuity. As of right now, I am engaged with the former strategy and I plan on having this company grow to around 15 to 30% of my long-term holdings. It is also the consistent dividends from AbbVie that offer great stability for any portfolio. That being said, the timing of buying a stock like this is best determined by technical analysis and I plan to use RSI indicators and moving averages to determine if it is a good time to buy according to overbought/oversold levels and bullish/bearish momentum. Lastly, I would hold and buy more of this stock until I notice signs of instability or mismanagement within the company. These instances could vary, but I would generally look for red flags such as multiple acquisitions within a short time frame or having a drug or multiple drugs recalled.
Full Disclosure: I am long ABBV. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for the writing of this article. I have no business relationship with any company whose stock is mentioned in the above article and this is not a solicitation or recommendation to purchase stock.