The stock of AbbVie (NYSE:ABBV, 30-year Financials) appears to be fairly valued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $117.91 per share and the market cap of $208.3 billion, AbbVie stock appears to be fairly valued. GF Value for AbbVie is shown in the chart below.
Because AbbVie is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which averaged 15.9% over the past three years and is estimated to grow 6.22% annually over the next three to five years.
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It is always important to check the financial strength of a company before buying its stock. Investing in companies with poor financial strength have a higher risk of permanent loss. Looking at the cash-to-debt ratio and interest coverage is a great way to understand the financial strength of a company. AbbVie has a cash-to-debt ratio of 0.11, which is worse than 87% of the companies in Drug Manufacturers industry. The overall financial strength of AbbVie is 3 out of 10, which indicates that the financial strength of AbbVie is poor. This is the debt and cash of AbbVie over the past years:
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. AbbVie has been profitable 10 years over the past 10 years. During the past 12 months, the company had revenues of $50.2 billion and earnings of $2.83 a share. Its operating margin of 26.16% better than 92% of the companies in Drug Manufacturers industry. Overall, GuruFocus ranks AbbVie’s profitability as strong. This is the revenue and net income of AbbVie over the past years:
Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term performance of a company’s stock. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of AbbVie is 15.9%, which ranks better than 77% of the companies in Drug Manufacturers industry. The 3-year average EBITDA growth rate is 4.4%, which ranks in the middle range of the companies in Drug Manufacturers industry.
One can also evaluate a company’s profitability by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, AbbVie’s ROIC is 14.08 while its WACC came in at 5.03. The historical ROIC vs WACC comparison of AbbVie is shown below:
To conclude, The stock of AbbVie (NYSE:ABBV, 30-year Financials) is estimated to be fairly valued. The company's financial condition is poor and its profitability is strong. Its growth ranks in the middle range of the companies in Drug Manufacturers industry. To learn more about AbbVie stock, you can check out its 30-year Financials here.
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