For pharmaceutical juggernaut AbbVie (NYSE: ABBV), life after losing patent exclusivity for the lucrative Humira has been akin to navigating uncharted waters. Although the once best-selling drug suffered a steep decline in sales due to the entry of cheaper generic competitors, AbbVie’s stock has defied conventional wisdom, skyrocketing nearly 30% in the past three months to reach unprecedented highs. But is it too late for investors to board the AbbVie train and still reap substantial returns?
AbbVie’s management has seamlessly steered the company through the choppy waters of transitioning away from Humira, positioning the stock as an enticing long-term investment prospect. Here’s why.
The Post-Humira Landscape
AbbVie rode the wave of Humira’s success for years. With the blockbuster drug raking in $21 billion in sales in 2022, accounting for over a third of the company’s total revenue, AbbVie was heavily reliant on its monopoly over Humira. However, when Humira’s patent protection expired in 2023, global sales plummeted by 40%. While this decline might seem daunting given Humira’s past significance, AbbVie’s management has adeptly prepared the company for this eventuality.
The company has successfully nurtured two newer immunology drugs, Skyrizi and Rinvoq, witnessing a meteoric rise from $400 million in 2019 to a staggering $11.7 billion in sales last year. Not only have these sales offset a significant portion of Humira’s decline, but management anticipates further growth to $27 billion by 2027, as these drugs continue to receive approvals for new indications.
Image source: AbbVie
Furthermore, the company utilized Humira’s profits to execute several significant acquisitions, diversifying its business beyond the realms of Humira. Notable among these moves was the $63 billion acquisition of Botox manufacturer Allergan in 2019, along with the agreements to purchase Cerevel Therapeutics (NASDAQ: CERE) and ImmunoGen for $8.7 billion and $10.1 billion, respectively, in late 2023, bolstering its neuroscience and oncology product pipelines. The success of in-house products like Skyrizi and Rinvoq, combined with these strategic accretions, provides AbbVie with a robust foundation for future growth.
Return to Growth Trajectory
2024 is poised to be a pivotal year for AbbVie. While the $54 billion in revenue generated in 2023 remained steady, considering the downturn of Humira, the stage is set for a potential upswing.
Analysts project that 2024 will serve as a transitional year, with estimated revenue at $54 billion and earnings per share hovering around $11.21. Following this phase, current analyst estimates indicate substantial growth prospects. Projections include revenue of $57.3 billion in 2025, $61.3 billion in 2026, and $64.8 billion in 2027, accompanied by an estimated annual earnings growth rate of 8-10%. Additionally, management’s confidence in the continued momentum of Skyrizi and Rinvoq into the 2030s underpins AbbVie’s long-term growth outlook.
Is AbbVie Stock a Compelling Buy Now?
Undoubtedly, stock valuation remains a critical factor in deciding whether to invest in any company. As AbbVie’s shares have surged by 30%, they now command a significantly higher price compared to just a few months ago.
Analysts’ 2024 estimates peg the stock at a forward P/E ratio of just under 16. Employing the PEG (Price/Earnings to Growth) ratio, which compares a stock’s valuation against its expected growth, a PEG ratio of around 1.5 or less is considered favorable. AbbVie’s current PEG ratio of 1.7 denotes a fair price for the stock. Moreover, with a 3.5% dividend yield, investors can savor passive income without offloading their shares.
Although the recent surge has elevated AbbVie from a bargain basement find to a fairly valued blue-chip stock, long-term investors can confidently consider purchasing AbbVie shares, especially in light of the promising future illustrated by management’s strategic vision.
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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.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
