Seeking Alpha
Value, growth at reasonable price, long-term horizon, long only
Profile| Send Message|
( followers)  

AbbVie (NYSE:ABBV) was Abbott's (NYSE:ABT) pharmaceutical business and was successfully spun-off a few days ago. The newly created company appears to be a great investment opportunity for income investors.

According to Abbott's management AbbVie is intended to pay a $1.6 annual dividend which at current price levels ($33.85) yields 4.7%. The first quarterly payment is to be expected in February 2013, after it gets approved by AbbVie's board. The excerpt below is from Abbott's Q3 earnings call transcript:

Thomas C. Freyman - Chief Financial Officer and Executive Vice President of Finance

[...] today we're announcing that we expect AbbVie to pay an annual dividend of $1.60 per share, starting with the quarterly dividend to be paid in February. This, like all dividends, will be subject to approval by the future AbbVie board in January 2013. [...]

AbbVie's pre-tax earnings for the first 9 months of 2012 were $4,369 million and I believe that they will be around $5,825 for the year. AbbVie's expected tax rate for 2013 is 22% and if we apply it to 2012's earnings we get EPS of $2.88 and a current P/E ratio of 11.75.

With free cash flow closely tracking (or even surpassing) net earnings, AbbVie's dividend is as safe as it gets. Only 55% of 2012 estimated earnings, it has double-digit growth potential for many years to come.

Excerpt from Abbott's Q3 earnings call transcript:

Miles D. White - Chairman, Chief Executive Officer and Chairman of Executive Committee

Regarding AbbVie, [...] we expect an ongoing tax rate of around 22% for AbbVie. [...]

AbbVie's most important product is Humira, an immunology drug that accounts for more than 50% of the company's revenue. However, Humira's patent expires in late 2016 for the US market and in 2018 for Europe. Until then it is expected to continue its fast growth trajectory and be AbbVie's greatest cash-cow.

AbbVie has many drugs in its pipeline, but only one of them has the potential to replace Humira. The drug in question is the next-generation hepatitis-C drug and is expected to launch in 2015 if things go as planned.

Conclusion

AbbVie is a great investment opportunity offering a secure 4.7% at least until 2016. However, investors should watch closely for any developments concerning the company's upcoming hepatitis-C drug. If it is significantly delayed or canceled, AbbVie's diminishing sales and reduced profitability will pose a significant threat to its dividend.

You can find AbbVie's annual pro-forma financial statements here. AbbVie's pro-forma financial results for 2012 can be extracted from this8-K filled by the "new Abbott.'

Source: Abbott's AbbVie Offers A Secure 5% Dividend That Has Great Growth Potential