AbbVie is a spin-off (2013) of the global pharma research and development division of Abbott Laboratories. What’s interesting current market cap of AbbVie is higher than remaining business of Abbott Labs.

Currently company discovers, develops and markets both biopharmaceuticals and chemically synthesized pharmaceuticals. Moreover company owns more than 40 products currently on market (key brands: Humira – around 65% of sales (!), Creon, LupronDepot, Synagis, Synthroid, Duopa, Imbruvica and many others). AbbVie operates mainly in four segments: Immunology, Oncology, Virology, Neurology and Others.

In case of biotech companies it is important to analyze both current portfolio (patent expiry dates) and pipeline of new products. These are key drivers of futures revenues (and obviously profits).

As it comes to patents there are expiries in coming years (partially for Humira). Company expects revenues of $37B by 2020, CAGR 10%., which should imply above $10B in net profits. Decent result.

Pipeline of new products is presented below:

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Pipeline seems promising. Company is about to launch 7 products (potentially in 2016) and many more in Phase III. Obviously there is always a risk of failure in biotechnology research.

Company is also growing through acquisitions (Pharmacyclis in 2015).

 

As it comes to financials (estimates):

Market cap ~ $97B

Net debt ~$23B (high in my opinion)

Payout ratio ~53%

Dividend yield 3.8% + buy-back, above $6.25B in 2015

Dividend growth in 2016 should be around 12% (!)

 

Estimated valuation ratios:

P/E = 11.7

EV/EBITDA = 13.8

 

AbbVie as a spin-off from Abbott Laboratories is classified as one of The Dividend Aristocrats – paying from 1973. Business model has changed so I think that historical dividend yields are incomparable. When we look at 2 years perspective 3.8% dividend yield is attractive, but time frame is short.

 

Share price performance:

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Share price is around all-time highs. As it comes to drawdown risk analysis I think that time frame is too short.

 

Summing up, interesting company but quite risky as it comes to my preferences. I am to analyze Abbott Laboratories but I think that also in that case significant change in business model and high share price will make me reluctant to invest. Valuation of AbbVie is demanding – around 14 times EV/EBITDA, but on the other hand company should perform double-digit EPS growth I think I would buy some shares at below $50. Currently share price is not within my risk/return preferences.

 

Disclaimer ABBV – no position