Seeking Alpha
Long only, value, growth, dividend investing
Profile| Send Message| ()  

AbbVie Inc (ABBV) is a research-based pharmaceuticals company which discovers, develops and commercializes advanced therapies. On July 26, 2013, the company reported second-quarter earnings of $0.82 per share which beat the consensus of analyst estimates by $0.03. The stock was spun-off from parent Abbott Laboratories (ABT) at the beginning of 2013 so it does not have much price history, but the stock is up 27.57% excluding dividends, and is beating the S&P 500, which has gained 18.73% in the same time frame. I'm doing this analysis at the request of STREETRE2 and with all this in mind I'd like to take a moment to evaluate the stock on a fundamental, financial, and technical basis to see if it's worth buying some stock in the company right now.

Fundamentals

AbbVie currently trades at a trailing 12-month P/E ratio of 13.83, which is inexpensively priced, but I mainly like to purchase a stock based on where the company is going in the future as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 13.94 is currently inexpensively priced as well for the future in terms of the right here, right now; but I don't like to see a forward P/E that is greater than the TTM P/E because that means it will be earning less in the future than it has in the past. Next year's estimated earnings are $3.22 per share versus TTM earnings of $3.25; but I would consider the stock cheap until about $48. The 1-year PEG ratio (4.66), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 1-year horizon), tells me that the company is expensively priced based on a 1-year EPS growth rate of 2.97%. Analysts don't anticipate any growth for the coming year, so if growth is your thing then I would not really buy it for that right now.

Financials

On a financial basis, the things I look for are the dividend payouts, return on assets, equity and investment. AbbVie boasts a dividend of 3.56% with a payout ratio of 49% of trailing 12-month earnings (or 52% based on free cash flow) while sporting return on assets, equity and investment values of 19.7%, 80.8% and 28.2%, respectively, which are all excellent values. The really high return on assets value (19.7%) is important because it is a measure of how profitable the company is relative to its assets, telling us how efficient a management team is at using its assets to generate earnings (for comparison, Pfizer (PFE) operates at 14.3% and Novartis (NVS) operates at 7.7%). The really high return on equity value (80.8%) is an important financial metric for purposes of comparing the profitability, which is generated with the money shareholders have invested in the company to that of other companies in the same industry (for comparison Pfizer operates at 32.6% and Novartis operates at 13.8%). The really high return on investment value (28.2%) is an important financials metric because it evaluates the efficiency of an investment that a company makes and if an investment doesn't have a positive ROI then the investment should not be made (for comparison Pfizer operates at 8% and Novartis operates at 11.1%). Because I believe the market may get a bit choppy here and would like a safety play, I believe the 3.56% yield of this company is good enough for me to take shelter in for the time being. The company kicked off its career by paying a dividend and I have no doubts it will continue to raise it in the future with the low payout ratio.

Technicals

(click to enlarge)

Looking first at the relative strength index chart [RSI] at the top, I see the stock muddling around in middle ground territory with a value of 59.63 with downward trajectory, which is a bearish pattern. To confirm that, I will look at the moving average convergence-divergence [MACD] chart next and see that the black line is above the red line with the divergence bars flattening out in height, indicating the stock is may come up on some downward momentum. As for the stock price itself ($44.70), I'm looking at $44.92 to act as resistance and the 50-day moving average to act as support for a risk/reward ratio, which plays out to be -1.68% to 0.49%.

Recent News

  1. The company launched a second Phase 3 trial with Neurocrine Biosciences (NBIX) of elagolix in patients with moderate to severe endometriosis-associated pain. Endometriosis is a female health disorder that occurs when cells from the lining of the uterus grow in other areas of the body, causing pain, irregular bleeding, and fertility problems. 7.5 million women in the US alone are believe to suffer from this predicament.
  2. Third Point's (TPRE) Dan Loeb exited from his AbbVie stake entirely according to a second quarter 13-F filing back on August 15th.

Conclusion

AbbVie is inexpensively valued based on future earnings and expensively on future growth prospects (one-year outlook) with analysts only expecting 2.97% growth in the coming year. Financially this is a solid company in terms of efficiency, but is saddled with lots of short-term and long-term debt; the dividend payout ratio is low based on trailing 12-month earnings and I don't doubt management will be able to continue to increase the dividend going forward. I don't know at what rate they would be able to increase the dividend, but if it were me I'd want to pay down the debt first. The technical situation of how the stock is currently trading is telling me we might be seeing some more downward pressure for now. The inexpensive earnings valuation, excellent management efficiency and ability to grow the dividend are what I like about the company, but personally I'm not going to be buying. I will continue to hold onto the shares I received from the Abbott spin-off and reinvesting the dividends for the reasons I mentioned in this article, but I like to see earnings growth in my dividend companies and currently that part of the equation isn't there for me to buy more shares.

Disclaimer: These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!

Source: AbbVie Has Excellent Management Efficiency, But Is It A Buy?