High inflation rates, looming interest rate hikes, and most recently Russia's invasion of Ukraine have all led to a return of market volatility in 2022. For context, the S&P 500 has fallen 9% year to date.
One company that has nevertheless managed to do well lately is pharma stock AbbVie (ABBV 1.06%), whose shares are up 11% year to date. This raises the following questions: Has AbbVie's rally been overdone? Or is there still room for the Dividend King to run higher? Let's dive into AbbVie's fundamentals and valuation to address these questions.
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AbbVie's revenue and earnings keep moving higher
AbbVie delivered healthy revenue and earnings growth in 2021, reporting $56.1 billion in sales last year, which represents a 22.6% growth rate against 2020. So what led to the company's robust results?
AbbVie's solid portfolio of existing drugs led to its impressive results for the year. While the mega-blockbuster drug Humira was able to grow its total revenue by 4.3% year over year to $20.7 billion in 2021, the real growth drivers continued to be the company's two other immunology drugs: Skyrizi and Rinvoq.
Skyrizi's total net sales soared some 85% year over year to $2.9 billion last year. Despite plaque psoriasis as its only indication during the year, the drug was able to ramp up its sales. That's because Skyrizi's share of the U.S. psoriasis biological market grew to 20%, which is more than Humira's market share for the indication, according to Chief Commercial Officer Jeff Stewart during AbbVie's recent earnings call.
Ahead of Humira's U.S. patent expiration set for 2023, AbbVie will need to add more indications to its next-gen immunology portfolio. Fortunately, the U.S. Food and Drug Administration (FDA) recently approved Skyrizi to treat adult patients with psoriatic arthritis. This indication could be worth just over $1 billion, which will make a good dent in replacing my estimate of a 50% or $9 billion drop-off in U.S. Humira revenue that will occur in 2023.
Rinvoq more than doubled its total net sales to $1.6 billion in 2021. This was the result of its 5.5% U.S. market share in rheumatoid arthritis and almost 5% market share in major international markets.
What really bodes well for Rinvoq is that the company has already received two additional FDA approvals in recent months. Rinvoq's FDA approval in January for moderate-to-severe eczema could generate $1.6 billion in peak annual sales. In addition, the FDA approval last December for active psoriatic arthritis could chip in another $900 million.
And with AbbVie expecting an FDA approval this month for Rinvoq to treat ulcerative colitis and an FDA approval for Skyrizi to treat Crohn's disease this month, the future looks bright for these two drugs. That's why AbbVie anticipates the combined peak sales of Skyrizi and Rinvoq will eventually exceed Humira's peak sales.
AbbVie's significant revenue growth also allowed its non-GAAP (adjusted) diluted earnings per share (EPS) to surge 20.3% higher year over year to $12.70 in 2021.
Thanks to the company's existing drug portfolio and its pipeline of several dozen indications, analysts expect AbbVie will generate 4% annual earnings growth over its 2021 earnings base. This includes a temporary drop in earnings expected in 2023 due to Humira's U.S. patent expiration.
Dividend growth should continue
Another reason that AbbVie seems to be a buy is its safe, growing dividend. AbbVie's dividend payout ratio of 40.9% in 2021 leaves the company the room necessary to continue growing its payout. That's because the company retains plenty of capital to invest in acquisitions to diversify its revenue streams and repay its debt.
This explains why AbbVie's board of directors was confident enough to raise its dividend by 8.5% last October. AbbVie's strong dividend growth and 3.8% dividend yield are an attractive proposition for income investors.
The stock still looks fairly valued
Although AbbVie is trading less than 1% off of its all-time high, the stock still appears to be sensibly valued. That's because its trailing 12-month dividend yield of 3.6% is just above its median dividend yield of 3.5%. What's more, AbbVie's price-to-earnings (P/E) ratio of 10.6 for this year is well below the S&P 500's 19.8 P/E ratio. This is arguably an enticing valuation to pay for a stock of AbbVie's quality, which is why I think the stock is a buy for income investors.
