AbbVie (ABBV -1.03%) stated this week that its earnings could potentially plunge more than 20% this year. The culprit is no secret: The company's top-selling drug, Humira, now faces biosimilar competition in the U.S.
With this forecast, you might think that AbbVie is destined to perform poorly for a while. However, that isn't a foregone conclusion. Here's exactly how AbbVie stock can beat the market in 2023.
Win the expectations game
The single most important thing AbbVie needs to do to outperform major market indexes is to win the expectations game. Everyone who follows AbbVie knows that the company's revenue and earnings will decline significantly this year. Those assumptions are baked into the stock's price. But if AbbVie can exceed expectations -- even bleak ones -- its shares will almost certainly rise.
Perhaps the most obvious way for AbbVie to top expectations is for Humira to hold up relatively well against biosimilar competition. There's already some reason for optimism on this front. AbbVie CEO Rick Gonzalez said in the recent quarterly update that U.S. Humira sales should fall by around 37% this year. That's at the low end of the company's previous projection of sales erosion between 35% and 55%.
Investors shouldn't be overly giddy if AbbVie's first- and second-quarter results show relatively minor sales declines for Humira. There's only one biosimilar to Humira on the market right now. By mid-year, that number could increase to 10. Therefore, AbbVie anticipates steeper sales erosion in the second half of the year. However, it's still quite possible that Humira's sales will be better than expected in 2023.
AbbVie could also have stronger performances from other drugs in its lineup. The best candidates to provide an extra boost are Humira's two successors, Rinvoq and Skyrizi. As it stands right now, AbbVie projects that the two drugs will together rake in $11.1 billion this year.
Get help from the economy
On a related note, AbbVie could beat expectations (and the market) if it gets help from the economy. The company's aesthetics products would especially benefit from a strong economic recovery.
To be sure, AbbVie is modeling for a tough year in 2023 for the aesthetics market. The company projects the U.S. toxin market (where Botox is the top product) will decline by mid-single digits. It forecasts a 10% decline for the U.S. filler market (in which AbbVie's Juvederm is the leader). But Gonzalez said that if the U.S. economy recovers, AbbVie "would fully expect for the aesthetics business to return back to historical growth rates very quickly."
There is perhaps a twist for investors to consider, though. AbbVie trounced the S&P 500 in 2022. Worries about high inflation and a potential economic downturn weighed heavily on the broader market, but didn't do so for AbbVie.
I think one key reason this was the case is that AbbVie is viewed widely as a safe haven stock. Investors typically turn to these kinds of stocks when they're unsure about what the future holds. Even the certainty that Humira was about to lose U.S. exclusivity wasn't enough to drag AbbVie stock down in that environment.
What economic conditions give AbbVie the best chance to again beat the market in 2023? Perhaps the best answer is an economy that isn't so weak that the company's aesthetics franchise struggles significantly, but isn't so strong that investors move away from safe haven stocks.
Don't forget the dividend
It's easy to sometimes overlook the fact that total returns are more important than share price gains. Don't forget AbbVie's dividend as a key weapon to help the stock beat the market this year.
AbbVie is a Dividend King with 51 consecutive years of dividend increases. Its dividend yield currently stands at 4.0%. This attractive yield gives AbbVie an extra boost in outperforming the market. Indeed, over the last 10 years, AbbVie's total return was over 520%, while its share price gains during the period were below 320%. That shows the power of the drugmaker's dividend.
I don't know whether or not AbbVie will actually beat the market in 2023. However, with its strong dividend and solid post-Humira strategy, my prediction is that the stock will be a big winner for investors over the long run.
