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AbbVie Inc. – Good for my health and my dividends portfolio

AbbVie Inc. discovers, develops, manufactures, and sells pharmaceuticals worldwide. The company offers HUMIRA, a therapy administered as an injection for autoimmune and intestinal Behçet’s diseases; treat adult patients with chronic lymphocytic leukemia (CLL), and chronic graft versus host disease; advanced prostate cancer, endometriosis, and central precocious puberty, and patients with anemia caused by uterine fibroids; and Botox therapeutic.

Market Cap: $235b S&P Rating: BBB+

Current situation and the past performance…

Let’s look at the chart and see why I like Abbvie. Abbvie does not pay dividends that long but it is a very outstanding company in the drug industry. As you can see the total annual return on my money since 2013 is 18.8%. The stock price is under the orange line since 2018. The orange line represents the earnings as I call it the “Margin of safety” line; if the price is under this line then you can easily buy it and ease it a little bit. 

Compare this investment with the S&P 500 returns. Abbvie beat the market over the last 8 years.  On the dividend side by +185% and the capital appreciation side by +18.7%. Very good returns.  Revenue is growing. They went from $27b in 2017 to $55b in 2021! Profit is about the same but not that big of growth, +13% over the last 5 years, but at least a growth.

Another important pillar is the 5-year average P/E Ratio. Unfortunately, it is 31.5 which is considerably high after the thumb rule that a good P/E is under 25 as Benjamin Graham always told us.

From a dividend standpoint…

Abbvie pays dividends since 2013. Since then, we saw no cut but steady growth. Right now Abbvie pays an outstanding 4.34% dividend yield and the good news is that you can „take what’s yours”. Buy Abbvie before 13.01.2022 and you will get the first quarter of this juicy dividend somewhere a month after the Ex div. date.

The payout ratio is another key factor that I want to see below 75%. In this case, Abbvie had this always under 50% so, also a big checkmark! A silent killer can be the number of outstanding shares. If a company issues shares in big numbers then your investment will be worthless, but if they buy back shares every year then you made a good investment and the company is capable of generating good profit and revenue. 

Before 2021 they were about to buy back shares but in 2021 they issued shares. Bad news but not that bad because they don’t pay their dividends out from these new shares as you can see from the payout ratio and above I wrote that the revenue has grown +103% over the years so they made investments, that’s why they issued shares. 

2021202020192018
1.765.1331.484.0001.546.0001.603.000

Overall very decent dividend yield and they won’t cut it any time soon.

Debt

This section speaks for itself. We want to see a company with less debt.

 This is the only part where I’m a little confused about Abbvie. They have a high level of debt. The debt to capital ratio is 78.55%. Although it is well covered by the operating cash flow and also the interest payments this level of debt is considerably high.

Forecasting, future growth 

The future does look good for investors. Based on 20 analysts the estimated future growth rate is 5% yearly. Analysts have a scorecard also which tells me that they are 75% right about the estimates of this particular company.

Fair value

I use the most widely accepted method to calculate the fair value of a company which is the Discounted Cash Flow(DCF). It is based on the premise that the fair value of a company is the total value of its future free cash flows discounted back to today’s prices. I use analysts’ estimates of cash flows and assume the company grows at a stable rate into perpetuity.

(Total Equity Value = Present value of next 10 years cash flows + Terminal Value = $173.881 + $289.777 = $463.658

Equity Value per Share (USD) = Total value / Shares Outstanding = $463.658 / 1768 = $262.27)

Undervalued by 49.3%. The current fair value is $262.27.

Risks and overall takeaway…

I like Abbvie, I own Abbvie. Although not a big portion of my portfolio still the company has a good vision. Like I wrote the debt is the only thing why I’m a little bit afraid, besides that strong numbers and the future will be bright for them. Investors’ big fear was also, what will happen when the Humira contract expires(their first line product). The good news is that the new date was set to 2034 from the original 2023. There is not much to be afraid of. I think Abbvie is still a good and strong company.

Disclosure: I have holdings in this mentioned company but I have no plans to buy more from this stock within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I have no business relationship with this particular company.

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