AbbVie (NYSE:ABBV) has done extremely well since its separation from Abbott (NYSE:ABT) - the stock has gained about 37% over the past twelve months. The separation resulted in the research and development business being named AbbVie, which has allowed the research and development activities of the company to go ahead independently. The strong sales of Humira and an attractive dividend yield in the first year continue to push AbbVie's share price upwards. However, there is strict competition arising in the lucrative domain of AbbVie's drugs.
A Look at the Performance
The company is highly dependent on its primary drug - Humira, which represented 57% of the global total sales for the last year. Humira is a treatment for rheumatoid arthritis and other immune system disorders and had sales of $10.6 billion during the last year. The most important drug for the company experienced a rise of 20% in its domestic sales and 11% in international sales, compared to 28% in domestic and 8% in international sales during the previous year. The second most important drug, AndroGel, experienced a decline of 10% during the last year. Other drugs also showed mixed trend.
Moving onto the margins - gross margin for the company has improved by 100 basis points during the last year - the gross margin has been showing a consistent increase for the company over the past three years, which should fare well for the future profitability of the company. Net margin, however, have fallen drastically - net margin at the end of the year was close to 22%, down from over 28% at the end of 2012 - interest expense of $278 million (previously $84 million) and income tax of $1.2 billion (previously $450 million) were the main reasons for a fall in the net margin.
Future Growth, Dividends and Cash Flows
In 2014, AbbVie expects revenue of approximately $19 billion. The guidance excludes any potential revenue from the expected 2014 U.S launch of the new HCV therapy as the approval date cannot be ascertained. AbbVie's pipeline represents significant potential. The company's late stage pipeline includes several compounds in Phase 3 development targeting therapeutic areas like Hepatitis C, immunology and endometriosis. As I mentioned above, the company needs to decrease its dependence on Humira - the HCV treatment can result in a future growth driver for the company along with the other drugs in the later stages of the trials.
Another important factor to consider for AbbVie investors is the juicy dividend yield. The stock yields 3.30% and pays $1.68 per share in annual dividends. The company distributed $2.55 billion as cash dividends to its shareholders. AbbVie is new to the dividend paying stock list and there is a lot of room for dividend growth. The company also did treasury stock operations worth $320 million during the last year. Therefore, AbbVie has distributed a total of $2.87 billion to its shareholders.
However, the free cash flows for the company have been reduced to $5.77 billion from $6.01 billion compared to the previous year. Nonetheless, the payout ratio of the company based on free cash flows is low (close to 45%), which means the dividend of the company is under no threat in the short-term. In fact, there is a lot of room for the company to grow its dividends if it deems necessary. There has been an increase of about $1.3 billion in the long-term liabilities of the company, which has resulted in increased interest rates for the last twelve months.
AbbVie is an extremely attractive stock for investors looking to buy growth as well as a dividend. The fundamentals of the company are extremely strong and the launch of new drugs over the next 12-18 months should allow the company to grow its revenues substantially. Furthermore, the strength of the cash flows of the company indicate that the growth in revenues will continue, making it an attractive pick for dividend investors.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Business relationship disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. IAEResearch is not a registered investment advisor or broker/dealer. This article was written by an analyst at IAEResearch and represents his/her personal opinion about the companies mentioned in the article. The article is for informational purposes only and it should not be taken as an investment advice. Investors are encouraged to conduct their own due diligence before making an investment decision. I am not receiving any compensation (other than from Seeking Alpha) for this article, and have no relationship with the companies mentioned in the article.