AbbVie: Great Growth, Great Value, And A 3.3% Dividend

Summary

• The average analyst expects AbbVie to grow EPS by 26.2% in 2015 and 20.3% in 2016. This is good growth for a $98.82B market cap company.
• AbbVie trades at a PE of 55.64 and an FPE of 12.14. A growth stock growing at 2-3 times its FPE is a great value.
• AbbVie pays a 3.3% dividend, which is something very few growth stocks will do for you.
• Growth, income, and value are the cornerstones of good investment. AbbVie has all three.

AbbVie (NYSE:ABBV) discovers, develops, manufactures, and sells pharmaceutical products worldwide. It has a market cap of $98.82B, which makes it a very stable company. However, ABBV has guided for approximately 31% adjusted EPS growth in FY2015. That is fantastic for a company of this size; and AbbVie's recent $21B buy of Pharmacyclics (NASDAQ:PCYC) and its blockbuster drug Imbruvica should allow it to continue to grow at a rapid pace for the next 5-10 years. This acquisition is expected to be highly accretive to revenues and earnings by 2017.

Imbruvica is a first in class BTK inhibitor (Bruton's Tyrosine Kinase). It has been approved in multiple indications for blood cancers. It has demonstrated high clinical activity in B-cell malignancies, especially in chronic lymphocytic leukemia ("CLL"), mantle cell lymphoma ("MCL"), and Waldenstrom's macroglobulinemia ("WL"). It was granted 'breakthrough therapy' designation for the above indications. It has since been approved for more indications. Further, Pharmacyclics has an extensive clinical program with 58 ongoing studies evaluating Imbruvica as a treatment (13 in Phase III). Imbruvica is expected to be a blockbuster drug with peak year sales of $7B+. The newly combined oncology franchise (Pharmacyclics and AbbVie) is expected to have peak year sales in excess of $20B+. By itself, this should mean good growth for AbbVie. Further, don't forget there are many more drugs in the pipeline than just oncology drugs. The chart below gives a good view of the potential market for B-cell malignancies.

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The graphic below in a basic way shows the combined hematologic oncology portfolio overview.

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The tables below give a top level list of some of the important AbbVie-Pharmacyclic pipeline drugs that are closest to the full evaluation stage.

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The table below shows AbbVie's drug sales in Q4 2014.

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A more extensive list of AbbVie's products can be found at this link.

Humira is clearly the big dog in ABBV's kennel. Humira had total Q4 2014 sales of $3.363B. Global Humira sales increased 10.6%, or 14.4% on an operational basis, excluding the impact of foreign exchange rates. Globally for FY2014 Humira sales were more than $12.5B. This was up 18.9% year over year operationally. The Humira-based business is expected to peak at about $16B per year in 2016. After that, the main patent expires. Andrew Baum, a Citi analyst, sees sales falling after that to about $6B per year in 2022 due to competition from biosimilars. Of course, other analysts seem to have better opinions of Humira's lasting power. ABBV will have its own biosimilars. It will fight new drugs in court. Plus, all use is not tied to one patent.

Humira is used to treat rheumatoid arthritis, juvenile idiopathic arthritis, psoriatic arthritis, ankylosing spondylitis, and plaque psoriasis. It is also used to treat Crohn's Disease and ulcerative colitis after other treatments have failed. Plus, ABBV is adding new indications all the time, which should help revenues.

AbbVie's other blockbuster drug is expected to be its new oral Hepatitis C treatment Viekira Pak. CEO Richard Gonzalez said that it may bring in $3B in 2015. However, analysts have gathered from ABBV's forecasts (and early sales results) that it may instead bring in just $2B in 2015. This has been a big factor in analysts' worries about ABBV's earnings in future years. These have been exacerbated by the problems Gilead Sciences (NASDAQ:GILD) has been having with its Hepatitis C offerings. Still even $2B in its first full year is a good number. The drug has more limited scope against Hepatitis C than Sovaldi (GILD's main drug), but it is very effective against the types of HCV for which it is approved. The drug has been approved in the U.S., the EU, and Canada. ABBV will doubtless get further approvals over time. It anticipates approval in Japan in H2 2015. New approvals should help ABBV growth Viekira Pak revenues.

FY2014 adjusted EPS were $3.32 per diluted share. This was up 5.7% year over year. Gross margin improved 410 bps in Q4 2014. Q4 2014 adjusted revenue was $5.371B. This was an 8.9% improvement year over year. Q4 2014 adjusted EPS were $0.89 per share. This was up 8.5% year over year. Notably, ABBV launched an interferon free Hepatitis C Virus treatment in Q4 2014 after approval in the U.S., the EU, and Canada. ABBV guided for FY2015 adjusted EPS of $4.25-$4.45 per diluted share. The midpoint of this guidance is approximately a 31% improvement over FY2014.

The above is impressive for a company of AbbVie's size. It is no surprise that BMO Capital Markets upgraded it to outperform from market perform on April 13, 2015. AbbVie may trade at a PE of 55.64; but it has an FPE of 12.14. This is a bargain price for a growth company expected to grow adjusted EPS at a 31% rate in 2015 according to its own guidance. Analysts have it pegged for 20.3% adjusted EPS growth in FY2016. In a good market, it could have stock price upside to an FPE of 18-20 (perhaps even more). With many worried about the market, it may only have upside to an FPE of 15-16. The midpoints of these gains are approximately +56.5% and 27.7% respectively. Either one is a good result for a troubled market.

The two-year chart of ABBV provides some technical direction for this trade/investment.

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The chart above shows that ABBV has broken strongly above its 50-day SMA. If you look at the chart more closely, you will see that it had been in a pennant pattern. Technically, such a pattern stores up energy for a larger-than-normal move either upward or downward. The strong move upward so far therefore seems likely to be followed by more upward movement.

In the near term, ABBV, especially if Q1 2015 earnings are good, may challenge its $70 per share mark. Longer term, it may go much higher. ABBV's fundamentals support a move up above its $70 per share level. How much further up it might go may depend on the Q1 2015 earnings report and the overall market performance. The sales performance of Viekira Pak (ABBV's new HCV drug) may also play a large role in how strong ABBV's up-move will be.

ABBV's 3.3% dividend should help it maintain a strong stock price even in a troubled market. Its $5B stock buyback program (approved in 2014) should help too. Further, the stock buyback program is something that can always be cancelled or delayed instead of a dividend cut. That is a nice cushion for income investors. ABBV is a buy. With the many questions about its new HCV drug revenues, it is probably a low buy, especially when the overall market may turn down significantly at any time. Still it is a buy, when many other stocks are too worrisome to be.

NOTE: Some of the fundamental fiscal data above is from Yahoo Finance.

By David White

Source : http://seekingalpha.com/article/3068466-abbvie-great-growth-great-value-and-a-3_3-percent-dividend