Drugmaker AbbVie (ABBV -0.30%) has historically been a safe, market-beating stock to own. Over the past five years, its total returns (which include dividend income) of 191% have eclipsed the S&P 500, which has increased by 113% when factoring in its distributions.
But there have been question marks about the future of AbbVie, especially with the company losing patent protection for its top-selling drug, Humira, next year. However, it has made moves, such as the acquisition of Botox-maker Allergan in 2020, to help diversify and grow its business. Should investors be worried about the stock, or is AbbVie likely to continue outperforming the market?
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The company is growing in many areas of its business
AbbVie released its fourth-quarter earnings earlier this month. And for the last three months of 2021, the company's net revenue of $14.9 billion rose 7.4% year over year, while its operating profit of $5.1 billion increased by 35%.
The company generated strong sales growth across many segments, with its aesthetics business leading the way and rising by 23% year over year to $1.4 billion. Its core immunology segment also grew by more than 13% to $6.7 billion in revenue. Those are encouraging growth numbers, especially with Humira generating a modest $5.3 billion in revenue for Q4, increasing by just 3.5%.
The acquisition of Allergan gave AbbVie a promising new aesthetics business to help make up the inevitable loss of revenue from Humira in the future. New drugs Skyrizi and Rinvoq have also been bolstering the company's top line, generating year-over-year growth of 71% and 84%, respectively, this past quarter.
Profitability and cash flow also look strong
The healthcare company's diluted per-share earnings of $2.26 in Q4 were back to more normal levels after last year. Other expenses (mainly due to changes in fair value of contingent consideration) weighed down its bottom line by $4.6 billion, leaving AbbVie with just a $0.01 per-share profit. For 2022, the company anticipates that its adjusted earnings will be at least $14 per share, rising by 11% as it expects to achieve expense synergies of $2.5 billion related to its Allergan acquisition.
AbbVie also anticipates that it will generate $24 billion in adjusted free cash flow during the year, which it will use to pay down debt, invest into its already robust pipeline (which features more than a dozen late-stage trials), and support its dividend, which has doubled in just five years.
Is the stock too attractive to pass up?
The big question mark around AbbVie's business is about Humira and the big drop in revenue that is inevitable once more competition swoops in as the patent expires. But there are plenty of positives from the company's most recent earnings report, suggesting that it's going to be more than OK.
Its biggest growth catalysts weren't from Humira, and other drugs are picking up the slack, including a promising aesthetics business. Analysts from Grand View Research project that the global aesthetic medicine market will grow at a compounded annual growth rate of 9.6% until 2030.
AbbVie also projects that the combined peak sales for Skyrizi and Rinvoq will ultimately exceed Humira's peak revenue. Plus, with all the free cash flow the company is generating, it's possible that AbbVie may end up acquiring more assets to help accelerate its revenue growth.
The stock's not just for growth investors either, as it pays a fairly high yield of over 4% per year, which is well above the S&P 500 average of just 1.3%. And to sweeten the deal, AbbVie's stock currently trades at a forward price-to-earnings multiple of just 10. This is incredibly cheap when compared to drugmaker Eli Lilly, where investors are paying nearly 30 times its future profits.
AbbVie is a solid healthcare stock to own, and this latest earnings report confirms that there isn't much of anything for long-term investors to worry about.
