AbbVie Is Just A Hold Right Now

| About: AbbVie Inc. (ABBV)

Summary

Fundamentally I believe the company to be inexpensively valued now on next year's earnings estimates and earnings growth expectations with great near- and long-term earnings growth expectations.

Financially the company does pay a fabulous dividend and has excellent return on equity.

On a technical basis the risk/reward ratio shows me there is more reward than risk right now.

Having opened my position in AbbVie (NYSE:ABBV) in early June of 2016 and given the fact that it is trading near its 52-week midpoint I believe it is a great time to investigate what is going on with this stock. The stock is off to an underwhelming year moving up 2.5%. Revenues of blockbuster Humira will soon erode with Pfizer's Phase 3 study for their Humira biosimilar showing that it met the primary endpoint for patients with moderate to severe RA. I own the stock in my Portfolio of 12 and the stock hasn't performed to my expectations yet. I feel it is important to examine the specific valuation, financial, and technical situations of AbbVie to see what is really going on with the stock right now.

Fundamentals

The company currently trades at a trailing 12-month P/E ratio of 17.01, 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 9.65 is currently inexpensively priced for the future in terms of the right here, right now. Next year's estimated earnings are $6.44 per share and I'd consider the stock inexpensive until about $97. The 1-year PEG ratio (0.99), 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 17.21%. The company has great near-term future earnings growth potential with a projected EPS growth rate of 17.21%. In addition, the company has great long-term future earnings growth potential with a projected EPS growth rate of 14.38%.

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 4.12% with a payout ratio of 70% of trailing 12-month earnings while sporting return on assets, equity and investment values of 9.4%, 111.3%, and 18%, respectively, which are all respectable values.

The really high return on equity value (111.3%) 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, AbbVie is highest in the major drug manufacturers industry ahead of Alimera Sciences (NASDAQ:ALIM) which sports an ROE of 79.9% and ahead of GlaxoSmithKline (NYSE:GSK) which sports an ROE of 78.6%).

Because I believe the market may get a bit choppy here and would like a safety play, I believe the 4.12% 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 five years.

Technicals

Source: stockcharts.com

Looking first at the relative strength index chart [RSI] at the top, I see the stock is approaching overbought territory with a current value of 58.89 relative to the rest of the market. Usually a value of 70 indicates an overbought condition. I will look at the moving average convergence-divergence [MACD] chart next. I see that the black line is above the red line with the divergence bars increasing slowly in height which tells me bullish moment is getting tired in the name. As for the stock price itself ($62.09), I'm looking at $63.55 to act as resistance and the 50-day simple moving average (currently $61.45) to act as support for a risk/reward ratio which plays out to be -1% to 2.4%.

Wrap Up

Fundamentally I believe the company to be inexpensively valued now on next year's earnings estimates and earnings growth expectations with great near- and long-term earnings growth expectations. Financially the company does pay a fabulous dividend and has excellent return on equity. On a technical basis the risk/reward ratio shows me there is more reward than risk right now.

I actually initiated my position in AbbVie in early June of 2016 and have been pretty ambivalent with the purchase thus far. I will only be purchasing additional shares if they are below $61, because I believe that is where AbbVie offers additional value. I've selected $61 because it is the average of the 52-week range.

I swapped out of Seagate (NASDAQ: STX) for AbbVie during the 2016 second quarter portfolio change-out because I ended up turning a profit in the name (6.2%, or 21.3% annualized) and wanted to lock in those gains. Since the swap, I have lost out on massive gains, as AbbVie has underperformed Seagate since the swap. For now, here is a chart to compare how AbbVie and Seagate have done against each other and the S&P 500 since I swapped the names.

Source: Google Finance

When it is all said and done, it matters what the stock has done in an investor's portfolio. For me, AbbVie is my smallest position and has not been doing well, as I'm up 6.5% on the name including reinvested dividends, while the position occupies roughly 3.9% of my portfolio. I will make purchases in the stock only if it is below $61.

I own AbbVie for the value portion of my portfolio, and I will continue to hold on to the stock for now. My portfolio is up 17.1% since inception, while the S&P 500 is up 13.9%. Below is a quick glance at my portfolio and how each position is performing. I am in the process of doing my quarterly portfolio changeout and will select a few stocks later this week; if you like what you see press the follow button to get my updates. Thanks for reading, and I look forward to your comments.

Company

Ticker

% change incl. DIV

% of Portfolio

Eaton Vance Corp

(NYSE:EV)

16.44%

5.19%

Facebook, Inc.

(NASDAQ:FB)

11.43%

9.47%

AbbVie Inc.

6.48%

3.89%

General Electric Company

(NYSE:GE)

-1.98%

5.79%

V.F. Corporation

(NYSE:VFC)

-2.52%

9.66%

Silver Wheaton Corp.

(SLW)

-6.39%

7.73%

Gilead Sciences Inc.

(NASDAQ:GILD)

-13.90%

19.62%

Cash

$

38.65%

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.

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