"The Lord giveth and the Lord taketh away.”
That Bible passage could also apply to Illinois-based pharmaceutical giant AbbVie Inc. (ABBV, Financial), much to the chagrin of shareholders. The stock was a stellar performer after being spun off of Abbott Laboratories (ABT). When it began trading on the open market in 2013, its share price was about $34. It topped $125 five years later, but has been in a nosedive since, losing more than 35% of its value.
So what’s the problem? After all, AbbVie reported what appeared to be impressive fourth-quarter and full-year 2018 results on Jan. 25. Adjusted earnings per share were $1.90, up 28% from the year-ago quarter. Sales came in at $8.3 billion, a year-over-year jump of nearly 7.5%. But those numbers fell short of what the financial community expected, and hell hath no fury like an analyst scorned. Analysts also weren’t thrilled the company wrote off $4.6 billion on its $10 billion Stemcentrix acquisition in 2016.
AbbVie has lost 35% of its market value since topping $125 in 2018.
On top of all that, AbbVie reported sales of its blockbuster drug, Humira, will be lower than expected this year. As a result, the world’s best-selling drug will suffer its first year-over-year decline, according to Money Show. That’s alarming because Humira is AbbVie’s big hitter, accounting for a whopping 65% of total revenue and 34% of the global market for rheumatic treatments, as reported by GuruFocus contributor John Engle in early January. In addition, the company is trying to fend off a number of generic competitors. One, Boehringer Ingelheim, has challenged Humira’s patents in the courts.
Due to the slowdown in Humira sales, the company is expecting earnings per share to be up just 1% this year on a sales increase of 10%, numbers far below what the the company has attained in the past five years.
All that bad news aside, there are reasons to like the stock. Trading at a price-earnings ratio of more than 21 as compared to the industry average of over 30 and just 8.35 times the next 12 months of expected earnings, it could be considered relatively cheap. The company is also more than Humira. Its cancer drug, Imbruvica, racked up sales of more than $1 billion in the fourth quarter, a gain of more than 40%. Further, Money Show also noted drugs for endometriosis, cancer and other treatments in the pipeline are projected to generate at least $35 billion in non-Humira sales by 2025.
A healthy dividend also makes AbbVie attractive. It’s at $4.28, thus yielding more than 5.3%. On a recent earnings conference call, management said they intend to raise it even further.
Investors seem to have confidence in the AbbVie team steering the ship. If it’s true that you get more bees with honey than vinegar, the company has the right person at the top. According to BioSpace, CEO Richard Gonzalez was named the fourth most congenial CEO in the pharmaceutical industry in a 2017 ranking by Owler, a California-based business insights platform.
Disclosure: The author has no positions in any of the stocks mentioned in this article.
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