AbbVie turns the corner; Fears of the “patent cliff” were exaggerated

Abbyie stock price

Key points

  • AbbVie’s treatment for its patent problems is working, and the company is on track to return to growth soon.
  • Humira continues to outperform and the non-Humira portfolio is stronger than expected.
  • The pipeline is strong and amplified by recently announced acquisitions expected to close this year.
  • 5 stocks we like best about AbbVie

AbbVie NYSE: ABBV is making a major breakthrough in 2024 and is on track to resume growth. Aside from the Humira-related patent cliff, the business is stronger than ever, and the patent cliff is more of a bump than a steep decline. The bottom line for investors is that Humira sales are resilient, doctors and patients remain slow to switch to off-brand replicas, and the non-Humira portfolio is stronger than expected. Sales forecasts for Rinvoq and Skrizi were raised along with peak targets for migraine hopefuls Ubrelvy and Qlipta.

“2024 is an exciting year for AbbVie, as we are well positioned to fully absorb the erosion of Humira and achieve modest operating revenue growth, followed by a return to robust growth in 2025 and high single-digit CAGR through end of the decade.”

AbbVie reported a solid quarter, driving growth

AbbVie reported a solid fourth quarter despite declining Humira sales. The company posted net sales of $14.3 billion, a 5.4% decline that beat consensus by 190 basis points. The decline was primarily due to sales of Humira, which beat forecasts but fell 40%, dragging the immunology portfolio down 12.3%. There was also weakness in the Oncology segment, down 7.4%, but offset by gains in drugs and critical segments.

The company’s leading Humira replacements, Rinvoq and Skyrizi, grew 63% and 52%, accounting for more than 25% of sales, respectively. Neurology grew 22% with a single-digit increase in Botox, a 15% increase in Ubrelvy and a 40% increase in Vraylar sales. Aesthetics, including Botox cosmetics, grew 6.5%.

The new margin is mixed but otherwise shareholder-friendly. GAAP and adjusted margin contracted compared to last year due to increased IP, RD and milestones associated with acquisitions and deals. The net result is a $0.15 headwind to adjusted earnings that completely offsets the perceived weakness. The adjusted $2.79 fell 22.5% year-over-year and is a cent lower than the market consensus.

Guidelines have been raised, but there is a caveat. The company raised its adjusted EPS target above the previous range, but the upper bound is still below the analyst consensus target. The news helping to push stock prices higher is the prospect of a return to growth this year and an acceleration of growth next.

The company also has a strong pipeline of candidates, with several milestones achieved in the quarter. Additionally, guidance expects an impact of $0.32 from the expected closing of acquisitions, confirmed in the earnings release. Acquisitions in the oncology and neuroscience sectors complement the existing portfolio and strengthen the non-Humira and non-immunology businesses. Earnings may be weaker than expected today, but the company is building long-term sales and margin leverage.

AbbVie’s return on capital is safe

AbbVie is a higher yield stock with a yield close to 3.7%, trading at 15X earnings. The rating is difficult to define compared to competitors; the range is wide among pharmaceutical companies, but it’s not the highest, and AbbVie’s performance is above average. The payout is reliable and safe equal to 50% of earnings and is expected to grow. AbbVie has a decade of sustained growth in its history and is technically a Dividend King thanks to its tie-up with Abbott Laboratories. Increases are around 9% and are expected to continue at a high single-digit pace for the next few years.

The technical outlook is bullish, but there is resistance to overcome. The stock is rising following the release and extending a trend that began in late 2023. The market is nearing an all-time high; it is already at a new closing high level and may soon reach new highs. As analysts have upgraded the stock and increased their price targets, ABBV could sustain a rally that takes it to the $200 to $220 level this year.

Abbvie stock chart

Before you consider AbbVie, you’ll want to hear this.

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