As the developer of some of the world's highest-grossing medicines, AbbVie (ABBV 0.25%) stands as a pharmaceutical titan, and its stock could be a good fit for many different types of investors' portfolios. Between its huge pipeline and its history of profitable operations, everyone from passive income investors to those seeking growth may find something to like about the company.
But the next couple of years will almost certainly be bumpy for shareholders. Let's start by looking at why someone might want to sell their shares of AbbVie as it'll be a good jumping-off point for discussing the reasons why others might find this an attractive time to invest.
Reason No. 1 to sell: Humira sales will soon crater
The biggest reason to sell AbbVie right now is that its star moneymaker, the immunosuppressive drug Humira, is going to become a lot less lucrative starting next year. That's a problem: In the third quarter, the drug -- which treats symptoms from a host of conditions, from psoriatic arthritis to Crohn's disease -- brought in more than $5.5 billion out of the company's total revenue of $14.8 billion.
The issue is that in 2023, Humira will lose market exclusivity in the U.S., and biosimilars -- the large-molecule drug equivalent to generics -- will promptly start devouring its market share. That is expected to drag the company's top-line growth to a standstill in 2024, per management. In fact, outside the U.S., where biosimilars are already on the market, Humira sales are plummeting. In Q3, international sales fell by 25.9% to $603 million.
While the company has a solid plan to replace the revenue it will be losing as Humira recedes, it'll take some time. Management expects that by 2025, the newer drugs Skyrizi and Rinvoq, which are already on the market and have earned approval for many of the same indications as Humira, will be selling well enough to drive annualized revenue growth on the order of 7% to 9% for the remainder of the decade. Management expects sales of these two replacement medicines combined will eventually eclipse Humira's revenue at its peak, with both forecast to earn more than $7.5 billion annually.
But for risk-averse investors, that prediction might not sound sufficiently convincing. Nor is the projected amount of top-line growth going to make millionaires out of any shareholders in the near term. So, if you'd prefer not to be invested in companies that are about to face major challenges, you might feel it's best to sell AbbVie shares now, or avoid buying them in the first place.
Reason No. 1 to buy: AbbVie's valuation
The silver lining of Humira's looming demise is that it's keeping the stock priced at a cheaper valuation than it might be trading at otherwise. Investors and financial analysts don't see AbbVie's top line growing in the near term. Take a look at these forward revenue estimates by Wall Street analysts.
ABBV Revenue Estimates for Current Fiscal Year data by YCharts
Those estimates are largely in line with what management has said about the next couple of years.
Next, examine this chart tracking the price-to-earnings ratios of AbbVie and some of its major competitors, such as Johnson & Johnson, Bristol Myers Squibb, and Gilead Sciences:
ABBV PE Ratio data by YCharts
At the moment, the stock isn't exactly a bargain buy, but it does compare favorably to its peers. For investors with long time horizons, its valuation right now thus makes for a decent entry point. Further, its well-grounded valuation means that investors won't be taking on as much downside risk as they might be with a competitor that has already seen its shares bid up.
Reason No. 2 to buy: Its growing dividend
AbbVie's dividend is already generous, and management is set to continue boosting it. At the current share price, its forward dividend yield is above 3.8%, and the company just announced a 5% dividend hike that will take effect for its next distribution in February. That increase may not seem large, but it's only the latest in a long line of hikes.
In the years since it was spun off from Abbott Laboratories in 2013, AbbVie's management has raised its dividend each year without fail, increasing it by a total of 270%. What's more, management has explicitly and repeatedly stated that continuing to grow the dividend is a priority, which should give investors a measure of confidence that a cut is unlikely.
In terms of the passive income an investment might make you, if you buy around $3,289 of AbbVie shares, you'll receive $125 in dividends annually. That might not sound like much, but it could still be a good way to add to your income streams, and you'll likely get some share price appreciation down the line when the company starts to grow again.
