It's been a tough year for AbbVie (NYSE:ABBV) as the stock is closing 2019 not far from where it finished the year before. Question marks about the future of its business have made investors wary of investing in the company. However, given its poor performance in a year that's seen the Health Care Select SPDR Fund rise by 21% and the S&P 500 index produce returns of around 29%, AbbVie could be an underrated buy for 2020, especially given some exciting opportunities ahead.

Diversification could be key to long-term growth

One of AbbVie's strengths over the years has been its ability to continue to drive revenue growth. From $22.9 billion in sales in 2015 to $32.8 billion in 2018, the company's top line has risen by more than 43% in a span of just three years. 

Acquisitions have played a key part of AbbVie's growth. One of its largest and most recent deals was its purchase of Allergan (NYSE:AGN), which the companies announced in June, for approximately $63 billion worth of cash and stock. Although investors didn't initially respond favorably to the deal, over the long term, AbbVie could enjoy significant benefits, the biggest of which is diversification. Although no specific date has been given, the two companies expect the deal to close "early 2020" which is when AbbVie's financials will begin including Allergan's results. 

AbbVie is largely dependent on Humira, perhaps so much that it makes the stock slightly risky. According to the company's most recent earnings report, released in November, Humira accounted for 58% of AbbVie's top line over the past nine months. And while that's an improvement from 61% the year prior, it's clear that the company needs to become more diversified, especially with sales from Humira dropping by 5% so far this year. 

Medical products in a pharmacy.

Image Source: Getty Images.

To make matters worse, the company's Rinvoq drug, which was highly touted by AbbVie executives, received a disappointing review from the Institute for Clinical and Economic Review, which said the drug had only "marginal clinical benefit" compared to Humira. The good news is that AbbVie doesn't have all its eggs in one basket, as it still has Skyrizi, which could be a substitute for Humira, and it's an attractive alternative, as it needs to be injected fewer times. Nonetheless, these are important reminders as to why diversification and the deal with Allergan are vital to ensuring that AbbVie continues to grow and expand its sales mix.

Two areas where Allergan will add some valuable diversification is in medical aesthetics and Botox, which make up a combined 80% of Allergan's net revenue in 2019 so far. Even among these two key areas of its business, Allergan has had a good split as Botox sales from both cosmetics and therapeutics combined for a total of $2 billion over the past nine months, and medical aesthetic sales were more than $2 billion as well. With a good mix of revenue, AbbVie's numbers will not only get stronger as a result of the acquisition, but its product sales will also be much more diverse. 

Allergan acquisition may not be the ideal solution

Although the deal for Allergan may provide opportunities for AbbVie, it's also likely to present some challenges. Over the past nine months, Allergan's sales have struggled, generating almost no growth.To make matters worse, Allergan has struggled with profitability, as the company is coming off a Q3 performance in November in which it incurred an operating loss of $596.6 million. Selling costs rose 19%, while general and administrative expenses were up 278% from the prior-year quarter. Despite the added overhead, Allergan's top line grew by just 3.6%.

The danger for AbbVie is that while the acquisition will add more revenue, it could also saddle the company with greater expenses that eat into its bottom line, which has been strong, with AbbVie posting a profit of more than $5.1 billion in each of the past four years.

Is the stock too expensive to own today?

AbbVie is currently trading at more than 40 times its earnings, but its forward price-to-earnings multiple, which factors in the company's future growth, and is expected by analysts to fall to just nine. The company's results this year have been weighed down by other expense items, including goodwill impairment. But with a PEG ratio of 2.7, there may not be enough long-term growth to convince investors that there's enough substance to justify an investment in the company today.

There's a great deal of uncertainty surrounding AbbVie's future, both with the drugs it has in development and its deal with Allergan, and that makes the healthcare stock too risky of a buy today, especially at its current valuation. Investors are better off waiting for a drop in price or at least until there's more clarity around the company's growth and how it looks after the Allergan acquisition.