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Home / Business / AbbVie: This Dividend Aristocrat Will Destroy the Market – AbbVie Inc. (NYSE: ABBV)

AbbVie: This Dividend Aristocrat Will Destroy the Market – AbbVie Inc. (NYSE: ABBV)





While fundamentals eventually gain ground in the long run, it is obvious that fear and euphoria are the driving forces behind stock prices on the daily hype of stock markets.

While it is so unpredictable and volatile Markets that often frustrate investors with little patience or make new investments, experienced investors know that buying opportunities are associated with this volatility.

Since I last wrote about AbbVie in January of this year, the market has punished AbbVie The share price has fallen 13% so far this year (from the stock price of $ 77.65 on April 19).

The S & P 500 has grown by almost 16% over the previous year. I believe that AbbVie's hammered stock price this year offers a great buying opportunity for those looking for an entry-level position, or even for those who want to improve their position.

While there are some potential headwinds that AbbVie faces in the risk section of this article, I believe such fears are exaggerated and will extend the security and growth profile of AbbVies's tremendous 5.5% return, the new developments since my last article and discuss the fair value of AbbVie in terms of the current stock price.

Reason # 1: AbbVie's Secure, Massive and Fast-Growing Dividend

With AbbVie's dividend yield approaching an all-time high, it's a fair question to ask if the dividend is safe. An unusually high yield often indicates that either 1) the dividend is likely to be cut in the near future or, I believe, 2) the markets overreact, and although there are risks, these risks are likely to be more than priced in at the current price.

The first measure I use to assess the security of a dividend is the EPS payout ratio.

In the case of AbbVie, the Company was expected to receive adjusted diluted EPS of $ 7.91 for the 2018 financial year in the previous item against the $ 3.59 dividends paid in the 2018 financial year. This equates to a payout ratio of 45.4% for the 2018 fiscal year. AbbVie's dividend provides an excellent balance between shareholder reward in the present while providing sufficient capital for future research and development activities. The next generation of drugs, which will allow for large dividend increases in the future, not to mention share buybacks such as the $ 5 billion increase in the share repurchase program approved last December (over 4% of outstanding shares a (current price).)

Looking to this year AbbVie for the midpoint adjusted diluted EPS of $ 8.70 for fiscal year 2019, which would mean a payout ratio of 49.2% for this fiscal year.

Use of EPS payout ratio The dividend seems fairly secure.

We now become the security of the dividend of A bbVie using the FCF payout ratio.

Source: AbbVie 10-K Form

AbbVie generated $ 13.427 billion in operating cash flow, compared to $ 638 million for fiscal year 2018 and free cash flow of $ 12.789 million Billions of dollars. Compared to the $ 5.580 billion dividend paid during this period, this represents a FCF payout ratio of 43.6%.

Since AbbVie had 1.479 billion shares outstanding at the end of 2018 (46K per 10K share) and that we will see buybacks this year, I expect annualized dividends to be paid at about 1.450 billion shares. This would equate to a dividend commitment of $ 6.206 billion against free cash flow of $ 13.5 to $ 14.0 billion, which would translate into a mid-range FCF payout ratio of 40%.



Source: Simply Safe Dividends

As Both Independent Research and research by renowned research firm Simply Safe Dividends have shown that AbbVie's dividend is relatively secure.

The next logical question investors can ask is how will dividend growth look in the coming years?



Source: Simply Safe Dividends

I would expect the recent 11.5% increase in dividends not to increase so much. If we believe that AbbVie is likely to increase its payout ratio slightly and the result is expected to grow by 9.6% over the next five years (according to Yahoo Finance, a significant decrease of more than 20% in the previous five years), it seems It can reasonably be assumed that increases of 9 to 10% are likely should AbbVie be able to achieve the aforementioned earnings estimates.

Now that we've discussed the growth and security profile of AbbVie's dividend, let's look at the reasons why I believe AbbVie will deliver estimates of analyst growth over the coming years.

Reason # 2: AbbVie's Comprehensive Pipeline, Recent Developments and Industry-Leading Management



Source: Evaluate Pharma

The main reason for my optimism regarding the future of AbbVie lies in 1) the increasing global demand for prescription drugs Drugs and 2) AbbVie's ability to capitalize on its deep pipeline.

While Humira's Concentration Risk Still Exceeds High While 61% of AbbVie's net revenue was derived from the blockbuster drug, the company has an ambitious but reasonable plan to address the concerns raised by a fig -Humie go after Humira, to address adequately.

Source: AbbVie Investor Presentation

While investors sometimes forget, AbbVie's growth plans are not dependent on Humira's continued success as management has been planning to live Humira for many years Now.

The next generation of immunological medications with Upa and Risa are the two drugs that are most likely to upset AbbVie's investors.

Indeed, Risa in Japan was just approved for the US treating plaque psoriasis and psoriatic arthritis. Management also expects that its strategic imperative for highly differentiated assets will come to fruition. Richard Richard Gonzalez adds:

"We are now confident that we have achieved our goal with risankizumab and upadacitinib, both of our next-generation immunological therapies, which have been shown in several clinical trials to be superior to Humira and other competing products "We expect that risankizumab and upadacitinib will come onto the market in 2019 and because of their profile, they expect a broad access to the formulations." CEO Richard Gonzalez

The approval of Risa in Japan was the first snag for it, and it's just the beginning of many positive developments that will come for AbbVie in 2019. It is also expected that Upa will hit the market in the second half of this year. This will be the main reason for the expected growth of adjusted diluted EPS of 10% for 2019.

Risa and Upa have demonstrated tremendous efficacy in all late-stage clinical trials And as Chief Scientific Officer Michael Severino stated, "We recently announced that we have recently issued a positive opinion from the CHMP and that we are approaching the timeframe for an approval decision in the US These discussions are going very well. "

This is very encouraging, as these two drugs are crucial in offsetting future revenue losses in Humira.

Meanwhile, the cancer drug Imbruvica has been approved for nine indications, and management is targeting eight more in the coming years.

The Venclexta has been approved for two indications and nine more are planned, of which a few are expected this year. Venclexta is therefore expected to double its sales this year.



Source: Evaluate Pharma

These two oncology drugs are the other key drugs for AbbVie in the coming years as oncology is expected to grow at an astonishing double-digit rate by 2024

Although Mavyret is not a growth-promoting drug in the coming years, it has proven to be extremely effective in treating hepatitis C with a response rate of 98%. Therefore, management expects Mavyret to make a significant contribution to AbbVie's revenue over the next few years.

For these reasons, Evaluate Pharma has ranked AbbVie as the second best drug pipeline in the industry behind Novartis.

The total revenue of Humira of $ 20 billion directed by AbbVie for the 2018 fiscal year proved correct, and AbbVie's total revenue for Humira in the 2018 financial year was $ 19.9 billion. The management has a good overview of what to expect, and I'm confident I'll be able to keep up with the blows from the pharmaceutical industry, so to speak.

In addition to AbbVie's extensive pipeline, the second reason for my optimism regarding AbbVie is the veteran management team led by a CEO and over 40-year-old veteran at Abbott Labs, Richard Gonzalez. Gonzalez has been a proven CEO since his acquisition in 2011, and has held various positions throughout the company for over 40 years. Dr. Michael Severino, Chief Scientific Officer, has more than 20 years of industry experience. The AbbVie management team has the knowledge and experience to lead the company through the highly complex pharmaceutical industry and their lives beyond Humira.

AbbVie has both a deep pipeline and management to fully exploit its pipeline, indicating that this may be possible.

Risks to Consider:

Although AbbVie has a lot to offer, I would be quite wrong to readers if I did not talk about the risks that AbbVie faces.

After Like any equity investment, it also has a fair share of risk. AbbVie is no exception.

As with any pharmaceutical company, the risk of exclusivity is serious, and companies can not become complacent. The concentration risk of AbbVie with Humira, which accounts for approximately 61% of 2018 sales, only increases this risk exponentially. While the pharmaceutical business is a boom-and-bust cycle and patent expirations are detrimental to a company's financial results, it drives companies to innovate continuously, as AbbVie does.

If AbbVie can not leave the company If Humira loses its exclusivity in the US around 2023 (two-thirds of Humira's revenue), it would hurt the company's prospects and jeopardize its ability to drive analyst estimates for single-digit earnings growth in the US to meet in the coming years. In addition, a substantial change in this date around 2023 in one or two years earlier would also be a problem for AbbVie.

The Bears believe that AbbVie is a one-trick pony and will not be able to replicate the success of Humira and replace the eventual decline in Humira's revenue. Concentration risk and concern over AbbVie's ability to replace lost revenue from Humira are the main reasons for AbbVie's share price, which was a deterrent last year.

Fortunately, I do not believe for AbbVie that Humira's revenue is up to date and will end up costing it in the long run. As discussed above, there are many promising drugs with blockbusters. Even in an industry that is as uncertain as the pharmaceutical industry, it only takes one or two drugs to radically change and shape the future of a business, as Humira has shown us (hopefully a few blockbuster drugs to reduce concentration risk). ,

We also can not forget the risk that the pharmaceutical industry is highly complex, and while some acquisitions pay off significantly, AbbVie's $ 10 billion acquisition of Stemcentryx in 2016 turned out to be a complete failure The company's leverage increased one of the highest in the industry.

However, even in the probable scenario where Rova-T (a drug that has previously proven to be worse than the standard hitherto), its revenue is $ 0, the $ 35 2025 expected revenue billions of non-Humira revenues are adjusted for the inevitable defaults of previously-promising drugs such as Rova-T.

In other words: AbbVie needs an unusually large number of failures in order to be unable to continue from Humir a.

AbbVie's debt burden stemming in part from the failed acquisition of Stemcentryx is something that needs to be addressed to bolster the company's fundamentals. Fortunately, management takes the necessary steps to reduce its balance sheet. By the end of 2019, analysts expect AbbVie's leverage ratio to be close to the industry average of 1.9, compared to the current level of 2.5.

In addition, the interest coverage ratio of 8.8 and the credit rating of S & P of A- shows that the balance sheet of this company is already in a decent position.

This will only improve with the introduction of Upa and Risa this year, as this increases the long-term security of AbbVie's diversification strategy and revenue.

Another risk that threatens AbbVie is the possibility that other pharmaceutical companies will prosecute AbbVie on the basis of AbbVies products that infringe their intellectual property, which could prevent AbbVie from selling a particular product. AbbVie causes legal costs.

Due to the limited nature of controlled clinical trials, it is also worth noting that ongoing and extensive efficacy and safety studies may require AbbVie to change its Terms of Use for a product, which could affect a product's market acceptance. In the worst case, the sale of a drug could also be stopped by the authorities in the midst of safety and efficacy issues.

If any of AbbVie's products lead to unsafe conditions or cause bodily harm to one of its customers, this could not only be the case. AbbVie spent considerable sums of money on legal settlements and legal defense, but could also use AbbVie's public relations and its ability to attracting and retaining new customers.

We can focus on Johnson & Johnson (JNJ) and their defense of talcum baby powder, and the $ 387.5 million in cleaning up 25,000 cases over blockbuster blood thinner Xarelto as Exhibit A at the startling legal costs, with which drug manufacturers are often confronted.

As with any investment in the pharmaceutical industry or any other US company There is also a fair and increasing share of regulatory risk associated with investing in AbbVie in the healthcare industry. After all, this is undoubtedly the biggest risk faced by AbbVie and its competitors.

Further tightening of AbbVie's fall is also a concern for possible regulatory review to address the ever-increasing health costs in the United States. The same applies to industry peers such as Pfizer (PFE) and Amgen (AMGN).

The recent proposal by the US Department of Health and Human Services calls for the abolition of drug rebates between pharmaceutical manufacturers and Pharmacy Benefit Managers or PBMs, leading to declining net drug prices and impacting the financial performance of companies such as AbbVie.

The biggest risk for the industry as a whole is probably the possibility of a "Blue Wave" in 2020. The mid-term elections of 2018 expressed as much as expected. The warming attitude towards the "Medicare for All" platform, which most of the Democrats are pursuing in 2020, poses a serious threat to the draftsman.

Although "Medicare for All" is unlikely to come into force following the Senate's 60-vote election campaign after the 2020 election, transition to a single payer seems inevitable at some point. The only question is when and how exactly will this look like.

Mass purchases of drug purchases and widespread price controls, which often accompany individual health insurance systems, would almost damage pharmaceutical manufacturers' margins, and the blow would bring drug makers to the knee.

For a more complete listing of all the risks of investing in AbbVie, I'd like to invite interested readers to refer to "Point 1A Risk Factors" on page 10 of the last 10-K of AbbVie.

Reason # 3: AbbVie is a wonderful company trading at a low discount

As we have created both the tailwind and headwind for AbbVie over the next few years, we will now focus on why I believe that AbbVie trades at a discount to fair value.

The first method I use to evaluate the value of the AbbVie share is the price-earnings ratio. Please note that in the case of AbbVie, I will use averages of five years instead of averages of more than 10 years to establish a fair value underlying asset since the company has only been publicly disclosed by Abbott Labs since its spin-off in 2013. [19659064] The current 8.97-to-forward ratio of AbbVie compares favorably with the 5-year average of 12.25 per Morningstar.

In an extremely conservative scenario, where AbbVie controls a forward PE multiple of just 10, the company currently trades 10.3% off its fair value, up 11.5%. This would mean a fair value of $ 86.57 per share.

Another method I will use to evaluate AbbVie is the current dividend yield relative to the average five-year dividend yield.

By Simply Safe Dividends, AbbVie's monstrous value of 5.52 The% return is 52% above its 5-year average of 3.63%.

Even in a conservative scenario where we assume that a more diversified AbbVie after Humira will have a fair value yield of 4.25% in a few years, this would still be a fair value of 100 at present , 71 $. This would indicate that AbbVie is trading at a discount of 22.9% on its fair value, up 29.7%.

The last method I will use to measure the AbbVie fair value is the dividend discount model or DDM.

]

Source: Investopedia

The first input of an expected dividend per share into the DDM is not surprisingly the easiest since the information can be found in seconds. In the case of AbbVie, the annualized dividend per share is $ 4.28.

The second cost of capital is another term for the required return. This can vary greatly from one investor to the next, depending on preferences, but I prefer to achieve a long-term overall annual return of at least 10% as this has historically outperformed the broader market.

The third and final contribution to the DDM is also the most uncertain. However, I believe that a very conservative growth estimate for the long-term dividend of 5.5% (well below the company's previous growth estimates and future growth estimates) shows that AbbVie is undervalued at the time.

Even with dividend growth as low as above, the fair value of the AbbVie stock is still $ 95.11 per share. This would mean that AbbVie trades at a discount of 18.4% at fair value, offering an increase of 22.5%.

If we calculate the three fair values ​​together, we will get a fair value of $ 94.13. This suggests that AbbVie's fair value is 17.5% and 21.2% higher.

Summary: AbbVie Stands for Historic Returns Despite Strong Fundamentals

With a return of 5.5%, AbbVie is currently offering investors an incredible opportunity to either increase their position if they are not yet fully weighted are, or to open a position.

Although returns are unbelievably high and investors must always pay attention to "sugar" yields, AbbVie is not a suckler profit. After all, AbbVie has a great pipeline of multiple drugs with legitimate blockbuster potential and management to capitalize on this strong pipeline.

In addition, AbbVie is a great company trading at a significant discount to fair value. The fact that a company with the potential of AbbVie trades at a discount of nearly 20% to its fair value in a market that has experienced a massive increase in recent months is like a cherry on the cake for investors with a long-term mindset and the risk tolerance required to invest in AbbVie.

Between the 5.5% dividend yield, a conservative 10-year earnings growth rate of 6-7% and an annual multiple expansion of 1.9%, AbbVie is expected to reach 13.4 to 14.4% of total return over the next decade , which results in considerable alpha.

Disclosure: I am ABBV for a long time. I wrote this article myself, and it expresses my own opinion. I can not get any compensation for it (except from Seeking Alpha). I have no business relationship with a company whose inventory is mentioned in this article.


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Home / Business / AbbVie: This Dividend Aristocrat Will Destroy the Market – AbbVie Inc. (NYSE: ABBV)

AbbVie: This Dividend Aristocrat Will Destroy the Market – AbbVie Inc. (NYSE: ABBV)





While fundamentals eventually gain ground in the long run, it is obvious that fear and euphoria are the driving forces behind stock prices on the daily hype of stock markets.

While it is so unpredictable and volatile Markets that often frustrate investors with little patience or make new investments, experienced investors know that buying opportunities are associated with this volatility.

Since I last wrote about AbbVie in January of this year, the market has punished AbbVie The share price has fallen 13% so far this year (from the stock price of $ 77.65 on April 19).

The S & P 500 has grown by almost 16% over the previous year. I believe that AbbVie's hammered stock price this year offers a great buying opportunity for those looking for an entry-level position, or even for those who want to improve their position.

While there are some potential headwinds that AbbVie faces in the risk section of this article, I believe such fears are exaggerated and will extend the security and growth profile of AbbVies's tremendous 5.5% return, the new developments since my last article and discuss the fair value of AbbVie in terms of the current stock price.

Reason # 1: AbbVie's Secure, Massive and Fast-Growing Dividend

With AbbVie's dividend yield approaching an all-time high, it's a fair question to ask if the dividend is safe. An unusually high yield often indicates that either 1) the dividend is likely to be cut in the near future or, I believe, 2) the markets overreact, and although there are risks, these risks are likely to be more than priced in at the current price.

The first measure I use to assess the security of a dividend is the EPS payout ratio.

In the case of AbbVie, the Company was expected to receive adjusted diluted EPS of $ 7.91 for the 2018 financial year in the previous item against the $ 3.59 dividends paid in the 2018 financial year. This equates to a payout ratio of 45.4% for the 2018 fiscal year. AbbVie's dividend provides an excellent balance between shareholder reward in the present while providing sufficient capital for future research and development activities. The next generation of drugs, which will allow for large dividend increases in the future, not to mention share buybacks such as the $ 5 billion increase in the share repurchase program (over 4% of outstanding shares a (current price).)

Looking to this year, AbbVie expects midpoint -cleaned diluted EPS of $ 8.70 for fiscal year 2019, which would mean a payout ratio of 49.2% for this fiscal year.

Use of EPS payout ratio The dividend seems fairly secure.

We now the security of AbbVie's dividend on the basis of the FCF dividend to investigate.

Source: AbbVie 10-K Form

AbbVie generated $ 13.427 billion in operating cash flow, compared to $ 638 million for fiscal year 2018 and free cash flow of $ 12.789 million Billions of dollars. Compared to the $ 5.580 billion dividend paid during this period, this represents a FCF payout ratio of 43.6%.

Since AbbVie had 1.479 billion shares outstanding at the end of 2018 (46K per 10K share) and that we will see buybacks this year, I expect annualized dividends to be paid at about 1.450 billion shares. This would equate to a dividend commitment of $ 6.206 billion against free cash flow of $ 13.5 to $ 14.0 billion, which would translate into a mid-range FCF payout ratio of 40%.



Source: Simply Safe Dividends

As Both Independent Research and research by renowned research firm Simply Safe Dividends have shown that AbbVie's dividend is relatively secure.

The next logical question investors can ask is how will dividend growth look in the coming years?



Source: Simply Safe Dividends

I would expect the recent 11.5% increase in dividends not to increase so much. If we believe that AbbVie is likely to increase its payout ratio slightly and the result is expected to grow by 9.6% over the next five years (according to Yahoo Finance, a significant decrease of more than 20% in the previous five years), it seems It can reasonably be assumed that increases of 9 to 10% are likely should AbbVie be able to achieve the aforementioned earnings estimates.

Now that we've discussed the growth and security profile of AbbVie's dividend, let's look at the reasons why I believe AbbVie will deliver estimates of analyst growth over the coming years.

Reason # 2: AbbVie's Comprehensive Pipeline, Recent Developments and Industry-Leading Management



Source: Evaluate Pharma

The main reason for my optimism regarding the future of AbbVie lies in 1) the increasing global demand for prescription drugs Drugs and 2) AbbVie's ability to capitalize on its deep pipeline.

While Humira's Concentration Risk Still Exceeds High While 61% of AbbVie's net revenue was derived from the blockbuster drug, the company has an ambitious but reasonable plan to address the concerns raised by a fig -Humie go after Humira, to address adequately.

Source: AbbVie Investor Presentation

While investors sometimes forget, AbbVie's growth plans are not dependent on Humira's continued success as management has been planning to live Humira for many years Now.

The next generation of immunological medications with Upa and Risa are the two drugs that are most likely to upset AbbVie's investors.

Indeed, Risa in Japan was just approved for the US treating plaque psoriasis and psoriatic arthritis. Management also expects that its strategic imperative for highly differentiated assets will come to fruition. Richard Richard Gonzalez adds:

"We are now confident that we have achieved our goal with risankizumab and upadacitinib, both of our next-generation immunological therapies, which have been shown in several clinical trials to be superior to Humira and other competing products "We expect that risankizumab and upadacitinib will come onto the market in 2019 and because of their profile, they expect a broad access to the formulations." CEO Richard Gonzalez

The approval of Risa in Japan was the first snag for it, and it's just the beginning of many positive developments that will come for AbbVie in 2019. It is also expected that Upa will hit the market in the second half of this year. This will be the main reason for the expected growth of adjusted diluted EPS of 10% for 2019.

Risa and Upa have demonstrated tremendous efficacy in all late-stage clinical trials And as Chief Scientific Officer Michael Severino stated, "We recently announced that we have recently issued a positive opinion from the CHMP and that we are approaching the timeframe for an approval decision in the US These discussions are going very well. "

This is very encouraging, as these two drugs are crucial in offsetting future revenue losses in Humira.

Meanwhile, the cancer drug Imbruvica has been approved for nine indications, and management is targeting eight more in the coming years.

The Venclexta has been approved for two indications and nine more are planned, of which a few are expected this year. Venclexta is therefore expected to double its sales this year.



Source: Evaluate Pharma

These two oncology drugs are the other key drugs for AbbVie in the coming years as oncology is expected to grow at an astonishing double-digit rate by 2024

Although Mavyret is not a growth-promoting drug in the coming years, it has proven to be extremely effective in treating hepatitis C with a response rate of 98%. Therefore, management expects Mavyret to make a significant contribution to AbbVie's revenue over the next few years.

For these reasons, Evaluate Pharma has ranked AbbVie as the second best drug pipeline in the industry behind Novartis.

The total revenue of Humira of $ 20 billion directed by AbbVie for the 2018 fiscal year proved correct, and AbbVie's total revenue for Humira in the 2018 financial year was $ 19.9 billion. The management has a good overview of what to expect, and I'm confident I'll be able to keep up with the blows from the pharmaceutical industry, so to speak.

In addition to AbbVie's extensive pipeline, the second reason for my optimism regarding AbbVie is the veteran management team led by a CEO and over 40-year-old veteran at Abbott Labs, Richard Gonzalez. Gonzalez has been a proven CEO since his acquisition in 2011, and has held various positions throughout the company for over 40 years. Dr. Michael Severino, Chief Scientific Officer, has more than 20 years of industry experience. The AbbVie management team has the knowledge and experience to lead the company through the highly complex pharmaceutical industry and their lives beyond Humira.

AbbVie has both a deep pipeline and management to fully exploit its pipeline, indicating that this may be possible.

Risks to Consider:

Although AbbVie has a lot to offer, I would be quite wrong to readers if I did not talk about the risks that AbbVie faces.

After Like any equity investment, it also has a fair share of risk. AbbVie is no exception.

As with any pharmaceutical company, the risk of exclusivity is serious, and companies can not become complacent. The concentration risk of AbbVie with Humira, which accounts for approximately 61% of 2018 sales, only increases this risk exponentially. While the pharmaceutical business is a boom-and-bust cycle and patent expirations are detrimental to a company's financial results, it drives companies to innovate continuously, as AbbVie does.

If AbbVie can not leave the company If Humira loses its exclusivity in the US around 2023 (two-thirds of Humira's revenue), it would hurt the company's prospects and jeopardize its ability to drive analyst estimates for single-digit earnings growth in the US to meet in the coming years. In addition, a substantial change in this date around 2023 in one or two years earlier would also be a problem for AbbVie.

The Bears believe that AbbVie is a one-trick pony and will not be able to replicate the success of Humira and replace the eventual decline in Humira's revenue. Concentration risk and concern over AbbVie's ability to replace lost revenue from Humira are the main reasons for AbbVie's share price, which was a deterrent last year.

Fortunately, I do not believe for AbbVie that Humira's revenue is up to date and will end up costing it in the long run. As discussed above, there are many promising drugs with blockbusters. Even in an industry that is as uncertain as the pharmaceutical industry, it only takes one or two drugs to radically change and shape the future of a business, as Humira has shown us (hopefully a few blockbuster drugs to reduce concentration risk). ,

We also can not forget the risk that the pharmaceutical industry is highly complex, and while some acquisitions pay off significantly, AbbVie's $ 10 billion acquisition of Stemcentryx in 2016 turned out to be a complete failure The company's leverage increased one of the highest in the industry.

However, even in the probable scenario where Rova-T (a drug that has previously proven to be worse than the standard hitherto), its revenue is $ 0, the $ 35 2025 expected revenue billions of non-Humira revenues are adjusted for the inevitable defaults of previously-promising drugs such as Rova-T.

In other words: AbbVie needs an unusually large number of failures in order to be unable to continue from Humir a.

AbbVie's debt burden stemming in part from the failed acquisition of Stemcentryx is something that needs to be addressed to bolster the company's fundamentals. Fortunately, management takes the necessary steps to reduce its balance sheet. By the end of 2019, analysts expect AbbVie's leverage ratio to be close to the industry average of 1.9, compared to the current level of 2.5.

In addition, the interest coverage ratio of 8.8 and the credit rating of S & P of A- shows that the balance sheet of this company is already in a decent position.

This will only improve with the introduction of Upa and Risa this year, as this increases the long-term security of AbbVie's diversification strategy and revenue.

Another risk that threatens AbbVie is the possibility that other pharmaceutical companies will prosecute AbbVie on the basis of AbbVies products that infringe their intellectual property, which could prevent AbbVie from selling a particular product. AbbVie causes legal costs.

Due to the limited nature of controlled clinical trials, it is also worth noting that ongoing and extensive efficacy and safety studies may require AbbVie to change its Terms of Use for a product, which could affect a product's market acceptance. In the worst case, the sale of a drug could also be stopped by the authorities in the midst of safety and efficacy issues.

If any of AbbVie's products lead to unsafe conditions or cause bodily harm to one of its customers, this could not only be the case. AbbVie spent considerable sums of money on legal settlements and legal defense, but could also use AbbVie's public relations and its ability to attracting and retaining new customers.

We can focus on Johnson & Johnson (JNJ) and their defense of talcum baby powder, and the $ 387.5 million in cleaning up 25,000 cases over blockbuster blood thinner Xarelto as Exhibit A at the startling legal costs, with which drug manufacturers are often confronted.

As with any investment in the pharmaceutical industry or any other US company There is also a fair and increasing share of regulatory risk associated with investing in AbbVie in the healthcare industry. After all, this is undoubtedly the biggest risk faced by AbbVie and its competitors.

Further tightening of AbbVie's fall is also a concern for possible regulatory review to address the ever-increasing health costs in the United States. The same applies to industry peers such as Pfizer (PFE) and Amgen (AMGN).

The recent proposal by the US Department of Health and Human Services calls for the abolition of drug rebates between pharmaceutical manufacturers and Pharmacy Benefit Managers or PBMs, leading to declining net drug prices and impacting the financial performance of companies such as AbbVie.

The biggest risk for the industry as a whole is probably the possibility of a "Blue Wave" in 2020. The mid-term elections of 2018 expressed as much as expected. The warming attitude towards the "Medicare for All" platform, which most of the Democrats are pursuing in 2020, poses a serious threat to the draftsman.

Although "Medicare for All" is unlikely to come into force following the Senate's 60-vote election campaign after the 2020 election, transition to a single payer seems inevitable at some point. The only question is when and how exactly will this look like.

Mass purchases of drug purchases and widespread price controls, which often accompany individual health insurance systems, would almost damage pharmaceutical manufacturers' margins, and the blow would bring drug makers to the knee.

For a more complete listing of all the risks of investing in AbbVie, I'd like to invite interested readers to refer to "Point 1A Risk Factors" on page 10 of the last 10-K of AbbVie.

Reason # 3: AbbVie is a wonderful company trading at a low discount

As we have created both the tailwind and headwind for AbbVie over the next few years, we will now focus on why I believe that AbbVie trades at a discount to fair value.

The first method I use to evaluate the value of the AbbVie share is the price-earnings ratio. Please note that in the case of AbbVie, I will use averages of five years instead of averages of more than 10 years to establish a fair value underlying asset since the company has only been publicly disclosed by Abbott Labs since its spin-off in 2013. [19659064] The current 8.97-to-forward ratio of AbbVie compares favorably with the 5-year average of 12.25 per Morningstar.

In an extremely conservative scenario, where AbbVie controls a forward PE multiple of just 10, the company currently trades 10.3% off its fair value, up 11.5%. This would mean a fair value of $ 86.57 per share.

Another method I will use to evaluate AbbVie is the current dividend yield relative to the average five-year dividend yield.

By Simply Safe Dividends, AbbVie's monstrous value of 5.52 The% return is 52% above its 5-year average of 3.63%.

Even in a conservative scenario where we assume that a more diversified AbbVie after Humira will have a fair value yield of 4.25% in a few years, this would still be a fair value of 100 at present , 71 $. This would indicate that AbbVie is trading at a discount of 22.9% on its fair value, up 29.7%.

The last method I will use to measure the AbbVie fair value is the dividend discount model or DDM.

]

Source: Investopedia

The first input of an expected dividend per share into the DDM is not surprisingly the easiest since the information can be found in seconds. In the case of AbbVie, the annualized dividend per share is $ 4.28.

The second cost of capital is another term for the required return. This can vary greatly from one investor to the next, depending on preferences, but I prefer to achieve a long-term overall annual return of at least 10% as this has historically outperformed the broader market.

The third and final contribution to the DDM is also the most uncertain. However, I believe that a very conservative growth estimate for the long-term dividend of 5.5% (well below the company's previous growth estimates and future growth estimates) shows that AbbVie is undervalued at the time.

Even with dividend growth as low as above, the fair value of the AbbVie stock is still $ 95.11 per share. This would mean that AbbVie trades at a discount of 18.4% at fair value, offering an increase of 22.5%.

If we calculate the three fair values ​​together, we will get a fair value of $ 94.13. This suggests that AbbVie's fair value is 17.5% and 21.2% higher.

Summary: AbbVie Stands for Historic Returns Despite Strong Fundamentals

With a return of 5.5%, AbbVie is currently offering investors an incredible opportunity to either increase their position if they are not yet fully weighted are, or to open a position.

Although returns are unbelievably high and investors must always pay attention to "sugar" yields, AbbVie is not a suckler profit. After all, AbbVie has a great pipeline of multiple drugs with legitimate blockbuster potential and management to capitalize on this strong pipeline.

In addition, AbbVie is a great company trading at a significant discount to fair value. The fact that a company with the potential of AbbVie trades at a discount of nearly 20% to its fair value in a market that has experienced a massive increase in recent months is like a cherry on the cake for investors with a long-term mindset and the risk tolerance required to invest in AbbVie.

Between the 5.5% dividend yield, a conservative 10-year earnings growth rate of 6-7% and an annual multiple expansion of 1.9%, AbbVie is expected to reach 13.4 to 14.4% of total return over the next decade , which results in considerable alpha.

Disclosure: I am ABBV for a long time. I wrote this article myself, and it expresses my own opinion. I can not get any compensation for it (except from Seeking Alpha). I have no business relationship with a company whose inventory is mentioned in this article.


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