Down 14% from all-time highs. Is this dividend king a dip buy? – TradingView News

Biotech stocks can be volatile because earnings typically don’t stabilize until a few effective drugs hit the market. However, AbbVie ABBV, a global biotechnology company, has demonstrated its value here. The company’s status was elevated from ‘Dividend Aristocrat’ to ‘Dividend King’ after consistently paying and increasing dividends over the past 52 years. Dividend Kings is an elite group of companies that have been consistently increasing dividends for 50 years.

Since the patent for its hit immune drug Humira expired, the company has suffered a setback. However, AbbVie has wisely diversified its revenue streams through many other successful drugs and strategic acquisitions, expanding its product portfolio.

Year-to-date, the company’s stock has gained 1.4% compared to the S&P 500 Index ($SPX)’s gain of 11.2%. ABBV is also down 14% from its all-time high, making it a great time to buy dividend stocks amid the decline.

AbbVie’s financial condition is stable

AbbVie has grown significantly through a strong product portfolio and strategic acquisitions. Its portfolio includes many effective drugs. However, the success of its immunology drugs, particularly Humira, has attracted the attention of investors and analysts over the past few years.

Humira (which treats autoimmune diseases) was a significant source of revenue for the company. However, Humira’s U.S. patent protection expired in 2023, leaving investors skeptical about AbbVie’s future. In the final first quarter of 2024, Humira generated $2.27 billion globally, down 35.9% year-over-year.

However, AbbVie has strategically expanded its portfolio to reduce the impact of biosimilar competition. Newer drugs such as Skyrizi and Rinvoq for autoimmune diseases are showing promising results, helping diversify revenue sources.

Notably, in the first quarter, Skyrizi’s global net revenues increased by 47.6%, while Rinvoq’s global net revenues increased by 59.3%. Additionally, the anticancer drugs Imbruvica and Venclexta expand the company’s oncology portfolio. In the first quarter, the oncology segment generated 13% of total revenues. Total revenue for the quarter fell 0.7% year-over-year to $12.3 billion, while adjusted diluted earnings fell 6.1% to $2.31 per share.

Strategic acquisitions can strengthen foundations

In late 2023, AbbVie also announced plans to acquire Cerevel Therapeutics. According to AbbVie, the company has a solid pipeline of “multiple clinical and preclinical stage candidates with the potential to treat several diseases, including schizophrenia, Parkinson’s disease (PD) and mood disorders.” The transaction is valued at approximately $8.7 billion in equity capital and is expected to close in mid-2024.

The goal of this deal is to strengthen AbbVie’s neuroscience portfolio, which currently accounts for just 15% of total revenue. I believe this will also help the company reduce its dependence on immunology drugs, which accounted for approximately 44% of total revenue in the first quarter.

Additionally, during the first quarter, AbbVie completed the acquisition of ImmunoGen and its flagship cancer therapy ELAHERE. This $10.1 billion deal is expected to help the company enter the commercial ovarian cancer treatment market. Despite these strategic transactions, the company maintained a strong balance sheet, reporting $18 billion in cash and cash equivalents at the end of the first quarter.

Currently, AbbVie’s forward dividend yield of 3.9% is higher than the healthcare industry average of 1.58%. A reasonable future payout ratio of 51.5% means the company’s earnings can maintain its current dividend payout, with opportunities to increase if earnings continue to grow.

Analysts tracking AbbVie stock predict 1.5% revenue growth for the full year, with earnings rising 1.13% to $11.24, in line with management expectations. Additionally, revenues and profits are expected to grow by 5.2% and 7.4%, respectively, by 2025.

AbbVie stock is currently trading at 14x 2024 earnings compared to its five-year historical average of 29x.

Is AbbVie a “Buy Now” according to Wall Street?

After the first quarter results, Goldman Sachs analyst Chris Shibutani maintained his “buy” recommendation and set a target price for the company’s shares at $190.

Shibutani believes that despite the company’s recent poor stock performance, its future prospects are good due to the company’s “emerging products and anticipated assets in planned investments.” Barclays maintained the same bullish stance with a price target of $187.

TD Cowen analyst Steve Scala recently reiterated a “buy” rating and set a price target of $180. Scala believes AbbVie has strong long-term potential and has revised its sales and EPS estimates upwards for 2024-2025. Scala believes AbbVie’s current valuation is an excellent entry point for investors looking to capitalize on the company’s growing earnings in the coming years.

Similarly, Cantor Fitzgerald initiated coverage of the stock with a “strong buy” rating.

Overall, Wall Street gave AbbVie stock a “moderate buy” rating. Of the 23 analysts covering the stock, 12 have issued a “strong buy” rating, two have issued a “moderate buy” rating and nine have issued a “hold” rating. ABBV has an average price target of $177.52, which is 13% above current levels. The high price estimate of $200 represents a potential upside of 27.3% over the next 12 months.

Is this dividend king a buy now?

AbbVie’s attempts to strengthen its foundations through strategic acquisitions demonstrate its commitment to increasing profits and returning value to shareholders.

The company has proven its worth as a Dividend King and is an excellent addition to the portfolio of income-oriented investors. However, it also makes a compelling case for a growth market, with a strong product portfolio including effective medicines and many more in development.

As of the date of publication, Sushree Mohanty did not have a position (directly or indirectly) in any of the securities mentioned in this article. All information and data contained in this article are for informational purposes only. For more information, please review Barchart’s Disclosure Policy here.