Please ensure Javascript is enabled for purposes of website accessibility

Why AbbVie Inc.'s Shares Rocketed 16% in January

By Todd Campbell - Feb 7, 2018 at 7:00AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Management's projecting significant growth in the coming years.

What happened

After updating investors on its 2017 financial performance and providing a bullish outlook for its future, shares in AbbVie Inc. (ABBV -0.42%) rallied by 16% in January, according to S&P Global Market Intelligence.

So what

Investors are less nervous about generic competition to AbbVie's best-selling drug, Humira, following a bullish outlook from management at the J.P. Morgan healthcare conference last month.

A man in a suit points at an ascending bar chart projected in front of him.


Humira's $18.4 billion in sales accounted for about 65% of AbbVie's total revenue last year, and some of its patents have already started to expire. Nevertheless, management isn't worried. It expects Humira's sales will increase to $21 billion in 2020, giving it time to expand the addressable market for its existing drugs and launch new drugs that can offset any lost sales when competitors finally do arrive.

In 2018, AbbVie thinks that growing demand for Mavyret, its hepatitis C drug, will add more than $1 billion to sales and that Imbruvica, a chronic lymphocytic leukemia drug, will continue to make headway toward its long-term goal of $7 billion per year in revenue. Its endometriosis drug, Elagolix, could begin adding to the top line this year too, if the FDA gives it an OK.

A bit further out, FDA applications for approval for Rova-T, upadacitinib, and risankizumab in small-cell lung cancer, rheumatoid arthritis, and psoriasis, respectively, could be filed in the next year. Those are multibillion-dollar indications, so AbbVie thinks its non-Humira revenue could increase from about $9 billion to $35 billion by 2025 if these drugs win a green light.

Now what

If AbbVie fends off Humira lookalikes for a while longer, then investors could be handsomely rewarded. The company's sales growth gives it enviable operating leverage, and that leverage, plus tax reform, gives it plenty of financial flexibility to return more money to investors through dividends.

Since it was spun out as its own company in 2013, AbbVie's increased its dividend by 77%. Yet its cash dividend payout ratio -- a measure of its ability to afford its dividend -- still remains below 50%. With management thinking operating margin can increase to 50% from 34% and predictions for an effective tax rate that's below 13% over the next five years, the odds are pretty good that income investors are going to benefit from putting AbbVie in their portfolios.


Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

AbbVie Inc. Stock Quote
AbbVie Inc.
$152.49 (-0.42%) $0.65

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/29/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.