As the market continues to set new record highs and investors drool over tech stocks, which are trading at absurd levels, plenty of undervalued options still exist even in this market. One undervalued stock I will highlight today happens to be one of the best dividend growth stocks of recent years and is trading at very low valuations, AbbVie Inc. (ABBV).
The company is up 6% year-to-date while the S&P 500 is up 7.5%. My thesis prior to the acquisition of Allergan was bullish and it is still bullish today. The Allergan acquisition will not only boost sales and diversify the portfolio, but $2 billion in synergies are expected as the two companies acclimate, which will also be a positive for the company moving forward.
Acquisition Of Allergan Completed
During the company’s most recent quarter, ABBV finally got approval to close on the acquisition of Allergan and begin to implement the business into their process. The current quarter will be the first FULL quarter the new company will be intact.
Allergan will provide diversity in products being sold now, but also build upon an already strong pipeline that ABBV had prior to the acquisition.
That last part is important due to the fact so many investors have questions regarding life after Humira, which has been the #1 selling drug in the world for a number of years, but has lost patent protection in Europe already and loses protection in the US in 2023.
For years Humira has single handily carried the company, accounting for 70% of sales, a figure that now hovers around 55% and decreasing. In fact, this past quarter Humira accounted for less than 50% for the first time in years.
The company is loaded with new drugs and a loaded pipeline that are ready to carry the load post-Humira.
Life After Humira
As I mentioned above, Humira has been the heartbeat of ABBV for many years. In 2017, Humira accounted for over 65% of total sales. At the conclusion of 2019, Humira accounted for 57% of sales. In the most recent quarter, that figure is now down to 46%, though on a trailing 12 months its closer to 54%.
Humira is still a top selling drug despite expiring patents in Europe, but as an investor we must look ahead. And let me tell you, the company future is bright and in good hands.
The company’s next top selling drug is Imbruvica, which has seen sales rise nearly 25% over the past 12 months. This drug was co-produced with Johnson $ Johnson (JNJ). Imbruvica still has plenty of room for growth having produced over $5 billion in sales the past 12 months compared to $4.1 billion the 12 months prior.
The next two drugs are still young, but off to stellar beginnings, and they are non-other than Skyrizi and Rinvoq. The two drugs have not completed a full year of sales yet, but Skyrizi, which was released first, has already nearly amassed $1 billion in total sales.
Rinvoq grew 60% from Q1 ’20 to Q2 ’20, and has the opportunity to be a blockbuster drug, according to management’s expectations. Rinvoq caters to patients with theumatoid arthritis, or RA, which is an autoimmune and inflammatory disease. Rinvoq continues to gain further patents due to its ability to address varies different diseases, which further enhances the drug’s potential.
Overall, the company has big plans for these drugs not named Humira, and the pipeline is stocked with many others just like it that will be more than ready to take the baton once Humira patents expire in a few years.
Strong Dividend Growth At A Compelling Price
Besides having a strong pipeline of new and upcoming products, another reason to be happy about owning shares of ABBV is the fact they have a strong track record of dividend growth. Over the last five years, the company has hiked the dividend an average of 21% annually.
Currently, the company pays a 5% dividend, which is already generous. Over the course of the past five years, the average dividend yield has been 3.9%, indicating the stock may be undervalued.
Speaking of undervalued, let’s look at a few other valuation metrics to see if we see a common theme. Let’s begin with the P/E ratio, the company currently trades at a multiple of 10.1x compared to the five year average of 13.9x. On a forward looking basis, the company trades at an earnings multiple of 7.7x, which is insanely low for a company with this kind of growth potential.
Another metric we could look at today is the Price to Sales metric, of which, ABBV trades at a P/S of 4.1x. The 5yr P/S average for ABBV is 4.5x, again suggesting the stock is undervalued when compared to recent averages.
Overall, the company is trading at extremely low valuations compared to recent history. What it really comes down to is the fact that some do not believe in the post-Humira growth and some do. Which side you are on comes down to whether you are an investor or not.
I personally believe the company is diversified and loaded with new and upcoming drugs that will push the company forward together. Gone are the days of relying on one blockbuster. The new drugs have potential to be blockbusters on their own and are already growing at strong clips.
With the company trading at such a low valuation, offering a high-yield of 5%, and seeing dividend growth of 20% each year, I am a BIG believer in the company long-term
Note: I hope you all enjoyed the article and found it informative. As always, I look forward to reading and responding to your comments below and feel free to leave any feedback. Happy Investing!
Author’s Disclaimer: This article is intended to provide information to interested parties. I have no knowledge of your individual goals as an investor, and I ask that you complete your own due diligence before purchasing any stocks mentioned or recommended.
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Disclosure: I am/we are long ABBV. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.