AbbVie (NYSE:ABBV) is a research-based biopharmaceutical company. On April 28, 2016, the company reported first quarter earnings of $1.15 per share which beat analyst estimates by $0.02 and revenue expectations were in-line at $6.0B. In the past year the company's stock is down 9.5% and is losing to the S&P 500, which has gained 0.2% in the same time frame.
I bought the stock for the value portion of my portfolio and recently the company was downgraded by Cowen with a price target of $70 and by Morgan Stanley with a price target of $65. 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.
The company currently trades at a trailing 12-month P/E ratio of 18.27, 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 10.83 is currently inexpensively priced for the future in terms of the right here, right now. Next year's estimated earnings are $5.63 per share and I'd consider the stock inexpensive until about $84. The 1-year PEG ratio (1), 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 18.32%. The company has great near-term future earnings growth potential with a projected EPS growth rate of 18.32%. In addition, the company has great long-term future earnings growth potential with a projected EPS growth rate of 16.4%.
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 3.74% with a payout ratio of 68% of trailing 12-month earnings while sporting return on assets, equity and investment values of 10.2%, 115.6%, and 16.9%, respectively, which are all respectable values.
The really high return on equity value (115.6%) 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, in the major drug manufacturers industry AbbVie has the second highest return on equity among all 32 companies.
Because I believe the market may get a bit choppy here and would like a safety play, I believe the 3.74% 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.
Click to enlargeLooking first at the relative strength index chart [RSI] at the top, I see the stock in battleground territory with a current value of 46.27 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 below the red line with the divergence bars decreasing in height which tells me bearish momentum is in the name. As for the stock price itself ($61), I'm looking at $61.77 to act as resistance and $59.66 to act as support for a risk/reward ratio which plays out to be-2.2% to 1.3%.
Fundamentally I believe the company to be inexpensively valued now on next year's earnings estimates and inexpensive on earnings growth expectations with great near- and long-term earnings growth estimates. Financially the company does pay a good 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. To me it seems as if the trend for the stock is to go lower in the short-term. I do believe however that the stock offers additional value if it falls below $58 (which is the midway point of the 52-week range) and if it gets there I will be buying additional shares. For now I am going to remain long the stock and perhaps write puts against it at the $58 strike price to collect some additional cash. Thank you for reading and I look forward to your comments.
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.