This Stock Yields 4% And Is A Great Long-Term Hold But Has Suffered

| About: AbbVie Inc. (ABBV)

Summary

The stock appears to be inexpensive relative to next year's earnings estimates and earnings growth expectations while having great near- and long-term earnings growth estimates.

The company pays a great dividend and has a phenomenal return on equity.

The risk/reward ratio is tilted towards higher risk at this point but it is about equal.

AbbVie Inc (NYSE:ABBV) is a research-based biopharmaceutical company. The Company is engaged in the discovery, development, manufacture and sale of a broad line of pharmaceutical products for treating chronic autoimmune diseases, virology and neurological disorders. On January 29, 2016, the company reported fourth quarter earnings of $1.13 per share which beat analyst estimates by $0.01. In the past year the company's stock is down 1% and is losing to the S&P 500, which has lost 0.3% in the same time frame.

I bought the stock for the steady dividend portion of my portfolio and recently the company was initiated at Deutsche Bank with a "hold" rating and $63 price target. It is with this bit of news I feel that it is important to evaluate the company on a fundamental, financial, and technical basis to see if it's worth adding additional shares to my portfolio.

Fundamentals

The company currently trades at a trailing 12-month P/E ratio of 18.17, which is fairly 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 9.56 is currently inexpensively priced for the future in terms of the right here, right now. Next year's estimated earnings are $5.97 per share and I'd consider the stock inexpensive until about $90. The 1-year PEG ratio (0.96), 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 inexpensively priced based on a 1-year EPS growth rate of 18.93%. The company has great near-term future earnings growth potential with a projected EPS growth rate of 18.93%. In addition, the company has great long-term future earnings growth potential with a projected EPS growth rate of 17.33%. Below is a table of how the fundamentals fared each time I've written about the stock.

Article Date

Price ($)

TTM P/E

Fwd P/E

EPS Next Yr. ($)

PEG

EPS Next Yr. (%)

22Jul15

69.99

62.49

13.99

5.00

3.46

18.05

29Mar16

57.06

18.17

9.56

5.97

0.96

18.93

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Financials

On a financial basis, the things I look for are the dividend payouts, return on assets, equity and investment. The company pays a dividend of 4% with a payout ratio of 73% of trailing 12-month earnings while sporting return on assets, equity and investment values of 10.9%, 131.1%, and 16.9%, respectively, which are all respectable values.

The really high return on equity value (131.1%) 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 purposes the company has the second highest ROE among the 32 major drug manufacturers.

Because I believe the market may get a bit choppy here and would like a safety play, I believe the 4% yield of this company is good enough alone for me to take shelter in for the time being. The company has been increasing its dividends for the past four years. Below is a table of how the financials fared each time I've written about the stock.

Article Date

Yield (%)

Payout TTM (%)

ROA (%)

ROE (%)

ROI (%)

22Jul15

2.91

182

6.5

56.0

16.8

29Mar16

4.00

73

10.9

131.1

16.9

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Technicals

Click to enlargeLooking first at the relative strength index chart [RSI] at the top, I see the stock in middle ground territory with a current value of 54.52 relative to the rest of the market. I will look at the moving average convergence-divergence [MACD] chart next. I see that the black line is even the red line with the divergence bars not moving in height which tells me bearish and bullish momentum are fighting against one another in the name. As for the stock price itself ($57.06), I'm looking at the 200-day simple moving average (currently $59.37) to act as resistance and$54.51 t o act as support for a risk/reward ratio which plays out to be-4.5% to 4.1%.

Wrap Up

Fundamentally I believe the company to be inexpensively valued now on next year's earnings estimates and on earnings growth expectations with great near- and long-term earnings growth expectations. Financially the company pays a phenomenal dividend and has a great return on equity. On a technical basis the risk/reward ratio shows me there is more risk than reward right now. Because the risk reward looks about even right now I've actually written a covered call a little higher than where the price is currently. I like the name and will be holding it for the long-term but I don't mind giving it up for a bit of income.

Disclaimer: This article is in no way a recommendation to buy or sell any stock mentioned. This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!

Disclosure: I am/we are long ABBV.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.