Is This Dividend King a Buy After a Strong Q3 Report?

Biotech companies can be volatile, but have the potential to continue expanding their product portfolio and boost their financials. AbbVie (ABBV), a global biotech company, is known for its strong product portfolio, consistent dividends, and robust pipeline.

Its blockbuster immunology drug, Humira, has driven much of its revenue over the past decade. While Humira is losing steam after its patent expiration, AbbVie has prepared for a future beyond this blockbuster. It has aggressively pursued a diversification plan that includes strategic acquisitions, expansion into immunology and oncology drugs, and a strong drug pipeline. This may help AbbVie to thrive in the coming years. Most recently, the company's efforts to maintain its market position were reflected in another strong quarterly report.

The added benefit is that AbbVie is a "Dividend King," which means it has consistently paid and increased dividends for the last 53 years. 

AbbVie stock is up 13.2% year to date, compared to the S&P 500 Index's ($SPX)25.6% gain. The stock is also currently cheap, and trading lower today after negative schizophrenia trial drug data, creating a buying opportunity for both growth- and income-oriented investors. 

AbbVie’s Q3 Shows Financial Strength and Resilience

Humira (which treats autoimmune conditions) has been a cornerstone of AbbVie's success, helping to drive revenue growth and market dominance in recent years. However, sales began to decline after the U.S. patent protection expired in 2023. In the most recent third quarter, Humira generated $2.2 billion in global sales, a 37.2% dip from the prior-year quarter.  

However, new autoimmune drugs Skyrizi and Rinvoq resulted in a 3.9% increase in net revenue from the immunology portfolio alone. Globally, Skyrizi generated $3.2 billion in sales (an increase of 50.8% YoY), while Rinvoq brought in $1.6 billion in sales (an increase of 45.3% YoY).

Both drugs have shown promising growth and are expected to treat a wide range of conditions, including rheumatoid arthritis, psoriatic arthritis, and other inflammatory diseases. Sales of these drugs have increased rapidly, and AbbVie expects Skyrizi and Rinvoq to offset a significant portion of the revenue lost due to Humira's decline. This transition is vital for AbbVie's long-term growth.

Furthermore, the company's cancer drugs Imbruvica and Venclexta have boosted its oncology portfolio, which increased by 11.6% in the quarter. AbbVie's neuroscience portfolio also grew by 15.6% in Q3. 

Notably, in the third quarter, total revenue increased 3.8% to $14.5 billion, while adjusted earnings increased 1.7% year on year. 

Strategic Acquisitions Could Enhance AbbVie’s Long-Term Game

AbbVie completed the acquisition of Cerevel Therapeutics in the third quarter, which will expand its neuroscience portfolio with a number of upcoming treatments (still in clinical trials) for Alzheimer's, Parkinson's disease (PD), and depression.

Management believes that Cerevel has the “potential to meaningfully impact revenue into the next decade.” Prior to this, AbbVie signed a definitive agreement with Aliada Therapeutics, which will expand its neuroscience portfolio. 

Currently, 16% of total revenue comes from the company's neuroscience portfolio. If and when these new drugs are approved, they may help strengthen the company's neuroscience portfolio. I believe it will also help reduce AbbVie's reliance on its immunology portfolio, which accounts for roughly half of total revenue. 

In the first quarter, AbbVie acquired ImmunoGen and its flagship cancer therapy, ELAHERE. This acquisition will allow AbbVie to enter the commercial ovarian cancer market. 

Despite these strategic acquisitions, AbbVie's financial position remains strong, with $7.3 billion in cash and cash equivalents on its balance sheet. 

This financial strength enables the company to continue raising its quarterly dividends, including a 5.8% hike in Q1 to $1.64 per share.

AbbVie pays a forward dividend yield of 3.7%, compared to the healthcare sector average of 1.58%. The forward payout ratio of 54.1% makes its dividends sustainable for now, with room for growth. 

Analysts covering AbbVie stock forecast earnings to decline by 1.5% in 2024, in line with management’s forecast. Adjusted earnings could, however, increase by 10.6% to $12.1 per share in 2025.

Trading at 16 times forward 2025 earnings, lower than its five-year historical average of 24.9x, AbbVie is a reasonable biotech growth stock to buy now. 

Is AbbVie Stock a Buy On Wall Street?

Overall, on Wall Street, AbbVie stock is a “moderate buy.” Out of the 26 analysts covering the stock, 16 have a “strong buy," two suggest a “moderate buy," and eight recommend a “hold” rating. The mean target price for ABBV is $210.77, which is 20% above its current levels. Its high price estimate of $240 implies a potential upside of 36.6% over the next 12 months. 

The Bottom Line on AbbVie Stock

AbbVie has a robust pipeline, with over 50 ongoing clinical trials in various therapeutic areas in the mid- to late stages of development. Immunology, oncology, neuroscience, and eye care are among the areas where the company is placing a strong emphasis. If AbbVie is successful in bringing breakthrough drugs to market, it may be able to drive long-term growth while decreasing reliance on legacy products.

Furthermore, the company's status as a Dividend King reflects the consistency of its earnings and its commitment to returning capital to shareholders. AbbVie's stock provides a unique combination of income stability and growth potential, backed by a diverse product portfolio and a promising pipeline.

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On the date of publication, Sushree Mohanty did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.