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Abbvie Inc(ABBV-N)

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Is AbbVie Stock a Buy Now?

Motley Fool - Thu Feb 22, 4:15AM CST

Pharmaceutical giant AbbVie(NYSE: ABBV) is getting used to life without Humira. Not literally, but the former global top-seller did lose patent exclusivity last year, and sales plummeted as cheaper generic alternatives entered the market.

So, why has AbbVie stock soared nearly 30% over the past three months to new all-time highs? More importantly, have investors missed their opportunity to buy the stock and still see satisfactory investment returns?

AbbVie's management has put on a masterclass in executing its transition away from a patent-protected Humira, and it makes the stock a compelling long-term investment idea.

Here is what you need to know.

Life after Humira looks great

AbbVie rode Humira's success for years. The mega-blockbuster drug did $21 billion in sales in 2022, over a third of AbbVie's companywide revenue. Pharmaceuticals enjoy a monopoly while their patents are in effect, which bars competition from copying them. Those patents expire eventually, which happened to Humira in 2023.

Global Humira sales in Q4 came in 40% less than the prior year. That seems scary, knowing how important Humira was entering last year. However, management has done an excellent job preparing the company to lose its patent protection on Humira.

AbbVie has grown two newer immunology drugs, Skyrizi and Rinvoq, from $400 million in 2019 to $11.7 billion last year. Those sales not only make up much of Humira's decline, but management believes sales will grow to $27 billion by 2027 as they continue receiving approval for new indications (new uses).

Rinvoq and Skyrizi long-term sales projections.

Image source: AbbVie

Management also used Humira's profits to fund several noteworthy acquisitions, diversifying the business away from Humira. It bought Botox owner Allergan for $63 billion in 2019. It agreed to buy Cerevel Therapeutics(NASDAQ: CERE) in late 2023 for $8.7 billion for its neuroscience pipeline and ImmunoGen for $10.1 billion around the same time for its oncology products.

The success of in-house products like Skyrizi and Rinvoq, plus these added assets, gives AbbVie a new foundation to build on.

AbbVie is returning to growth

It might be fair to call 2024 a pivotal year. The company did $58 billion in sales in 2022, Humira's last protected year. AbbVie's $54 billion in 2023 revenue was arguably a win, considering Humira's drop. But AbbVie didn't grow either. That could soon change.

Right now, it looks like 2024 is going to be one final transition year before the new AbbVie returns to growth. Analysts believe AbbVie will end 2024 with $54 billion in revenue again, and earnings per share will be roughly flat at $11.21 per share.

From there, current analyst estimates call for the company to grow nicely moving forward. That includes:

Calendar YearEstimated RevenueEstimated Earnings Per Share
2025$57.3 billion$12.17
2026$61.3 billion$13.35
2027$64.8 billion$14.62

Note: Data sourced from publicly available consensus Wall Street estimates.

Earnings are estimated to grow by 8% to 10% annually over these three years, and management believes Skyrizi and Rinvoq can maintain growth momentum into the 2030s, so AbbVie's long-term growth looks intact.

Is AbbVie stock a buy today?

Of course, valuation should always play an essential part in deciding whether to buy any stock. AbbVie's 30% run means shares are notably more expensive than just a few months ago.

Analysts' 2024 estimates value the stock at a forward P/E ratio of just under 16. I like using the PEG ratio to compare a stock's valuation against its expected growth and buy at a PEG ratio of around 1.5 or less. That makes AbbVie's current PEG ratio of 1.7 a fair price for the stock. Plus, investors get the added benefit of a 3.5% dividend yield that gives shareholders some passive income without having to sell their shares.

The stock's recent rise has taken AbbVie from the bargain shelf to a fair valuation for the blue-chip stock it is. Long-term investors can confidently buy AbbVie after management has shown Wall Street how bright the future could be.

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Justin Pope has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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