Company Description: Abbvie Inc. is a global research-based pharmaceuticals business that emerged as a separate entity following its spin-off from Abbott Laboratories at the start of 2013. AbbVie's key drug is Humira for rheumatoid arthritis.
Fair Value: In calculating fair value, I consider the NPV MMA Differential Fair Value along with these four calculations of fair value, see page 2 of the linked PDF for a detailed description:
1. Avg. High Yield Price
2. 20-Year DCF Price
3. Avg. P/E Price
4. Graham Number
ABBV is trading at a premium to all four valuations above. Since ABBV's tangible book value is not meaningful, a Graham number can not be calculated. When also considering the NPV MMA Differential, the stock is trading at a 6.5% discount to its calculated fair value of $53.83. ABBV earned a Star in this section since it is trading at a fair value.
Dividend Analytical Data: In this section there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:
1. Free Cash Flow Payout
2. Debt To Total Capital
3. Key Metrics
4. Dividend Growth Rate
5. Years of Div. Growth
6. Rolling 4-yr Div. > 15%
ABBV earned one Star in this section for 3.) above. ABBV earned a Star for having an acceptable score in at least two of the four Key Metrics measured. The company has paid a cash dividend to shareholders every year since 1926 and has increased its dividend payments for 43 consecutive years.
Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA) or Treasury bond? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:
1. NPV MMA Diff.
2. Years to > MMA
ABBV earned a Star in this section for its NPV MMA Diff. of the $1,132. This amount is in excess of the $500 target I look for in a stock that has increased dividends as long as ABBV has. The stock's current yield of 4.05% exceeds the 2.51% estimated 20-year average MMA rate.
Peers: The company's peer group includes: Merck & Co. Inc. (MRK) with a 3.5% yield, Bristol-Myers Squibb Company (BMY) with a 2.3% yield, and Eli Lilly & Co. (LLY) with a 2.5% yield.
Conclusion: ABBV earned one Star in the Fair Value section, earned one Star in the Dividend Analytical Data section and earned one Star in the Dividend Income vs. MMA section for a total of three Stars. This quantitatively ranks ABBV as a 3-Star Hold stock.
Using my D4L-PreScreen.xls model, I determined the share price would need to increase to $69.80 before ABBV's NPV MMA Differential decreased to the $500 minimum that I look for in a stock with 43 years of consecutive dividend increases. At that price the stock would yield 2.9%.
Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $500 NPV MMA Differential, the calculated rate is 0.6%. This dividend growth rate is below the 4.1% used in this analysis, thus providing a margin of safety. ABBV has a risk rating of 1.25 which classifies it as a Low risk stock.
Like all pharmaceutical companies, ABBV is faced with competition from generics, pricing restraints and R&D related risks. The company owns the best-in-class immunology drug Humira, which accounts for a significant percentage of its sales. Humira's U.S. patent expires in late 2016. The company is well-positioned to produce strong cash flows to support future development of drugs in the pipeline including new treatments for hepatitis C, cancer and other conditions.
The stock's dividend metrics have improved since the last review with a Free Cash Flow payout of 82% (down from the last review of 340%) and Debt To total Capital of 85% (down from 92%), both are still beyond my maximum acceptable level. ABBV is currently trading at below my calculated fair value of $58.83. I plan to continue watching the company's dividend fundamentals before adding to my position.
Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.
Full Disclosure: At the time of this writing, I was long ABBV (3.4% of my Dividend Growth Portfolio). See a list of all my dividend growth holdings here.
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Tags: ABBV, MRK, BMY, LLY,
