Several Wall Street analysts expressed skepticism when AbbVie (ABBV 0.91%) announced its planned $63 billion acquisition of Allergan (AGN) in June. This negativity contributed to an absolutely dismal performance for AbbVie so far in 2019, with its shares dropping more than 30% at one point.

But at least one analyst now thinks that AbbVie looks like a great pharma stock to buy. Citigroup's Andrew Baum recently upgraded AbbVie from a neutral rating to a buy rating and set a one-year price target that's nearly 20% above AbbVie's current share price. Baum had two primary reasons for his optimism about AbbVie's prospects.

Businessman pointing to a shining point at the end of a line trending upward.

Image source: Getty Images.

1. The Allergan acquisition isn't such a bad idea after all

Baum wrote to investors that Citi believes "AbbVie will extract significant shareholder value from Allergan's franchises." Those franchises include Botox, Juvederm, and Vraylar. Allergan reported solid sales growth for each of these products in the second quarter

Botox is the crown jewel in Allergan's lineup. The drug is used for facial aesthetics and for several therapeutic purposes, including the treatment of bladder dysfunction, cervical dystonia (a disorder where muscles contract involuntarily), and chronic migraine. However, Allergan's biggest rising star is antipsychotic drug Vraylar, which appears on track to be the company's next blockbuster.

AbbVie expects that its acquisition of Allergan will boost its annual revenue growth from 7% to around 10% through 2023, putting it on track to claim one of the strongest revenue growth rates among big pharma companies. Buying Allergan also helps cushion the blow from declining sales for AbbVie's top-selling drug, Humira, which already faces biosimilar competition in Europe and will compete against biosimilars in the U.S. beginning in 2023.

2. Rinvoq and Skyrizi aren't getting enough respect

Two other core components to AbbVie's strategy to deal with its Humira issue are the company's newly approved immunology drugs, Rinvoq and Skyrizi. Baum doesn't think that investors are giving due respect to the potential for these two drugs.

The FDA approved Skyrizi in April for treating plaque psoriasis. AbbVie followed up in August by winning FDA approval for Rinvoq as a treatment for rheumatoid arthritis. Both drugs are also being evaluated in clinical studies for other indications, including atopic dermatitis, Crohn's disease, psoriatic arthritis, and ulcerative colitis. 

AbbVie thinks that Skyrizi could pull in peak annual sales of around $5 billion. It projects that Rinvoq could achieve peak annual sales of $6.5 billion. If the company's estimates are in the ballpark of what the two drugs can actually make, AbbVie should be able to largely offset the expected sales declines for Humira.

Is Citi's optimism realistic?

My view is that Citi's upgrade of AbbVie and the optimistic price target make sense. I agree with Andrew Baum that AbbVie should be able to realize significant benefits from its acquisition of Allergan. And I think he's right that the market isn't fully appreciating the potential for Rinvoq and Skyrizi.

It's true that megadeals don't always work out very well for big pharma stocks. It's also true that AbbVie's history of acquisitions doesn't inspire a tremendous level of confidence. But AbbVie didn't overpay for Allergan, in my opinion. Like Baum, I expect the deal will provide value for shareholders over the near term and the long term.

Baum isn't the only observer to think highly of the prospects for Rinvoq and Skyrizi. Pharmaceutical market researcher EvaluatePharma ranked the drugs in second and third places, respectively, among the top new drug launches of 2019

I understand why some investors are worried about the challenges for Humira. I get that many don't like the Allergan deal. But the reality is that this stock should be valued more highly than it is right now.

AbbVie currently trades at less than eight times expected earnings. Its dividend yields north of 5.7%. The company has solid growth prospects with Imbruvica and Venclexta and great new potential blockbusters with Rinvoq and Skyrizi, in addition to what Allergan brings to the table.

Could AbbVie's shares jump close to 20% over the next year as Citi projects? I think so.