AbbVie Inc. (ABBV) is a research-based biopharmaceutical company that develops and markets therapies that address diseases. It also has a pipeline of medicines and company's portfolio of proprietary products includes a line of adult and pediatric pharmaceuticals.
So let's take a look at this company and try to explain to investors the reasons this is an apparently appealing investment opportunity.
- David Dreman Stock Picks
- David Dreman Current Portfolio
- This Powerful Chart Made Peter Lynch 29% A Year For 13 Years
The key product is Humira, an anti-inflammatory product, an injectable biologic TNF (tumor necrosis factor) blocker treatment forrheumatoid arthritis (RA) and similar conditions. Humira sales increased to $10.7 billion in 2013 from $9.3 billion in 2012 and $7.9 billion in 2011.We estimate that Humira continues to see strong growth in the dermatology and gastroenterology markets, accounting for more than half of the global prescription drug market for rheumatoid arthritis. Humira has the potential to treat other diseases and is approved for many other uses, including juvenile idiopathic arthritis, psoriasis, ankylosing spondylitis, ulcerative colitis, Crohn's diseaseand axial spondyloarthritis. AbbVie's strategic objectives include expanding Humira's sales through greater penetration of emerging markets like China and Japan. The firm also plans to launch five significant new products in the next years that should help to boost sales.
Looking at the financials, the company has a strong balance sheet: good cash that allows it to reward current shareholders through dividend and share repurchases. Dividend-payment history affirms its commitment to maximize shareholder wealth. The company raised its quarterly dividend by 5% to $0.42 per share from $0.4.
The firm is currently Zacks Rank # 3 - Hold, and it also has a longer-term recommendation of "Neutral". For investors looking for a better Zacks Rank there are no options, because all peer group -(Abbott Labs(ABT), Allergan Inc. (AGN), Astrazeneca PLC (AZN), Bristol-Myers (BMY), Johnson & Johnson (JNJ), Lilly Eli& Co. (LLY), Merck & Co. Inc. (MRK) and Novartis AG-ADR (NVS) have the same rank.
In terms of valuation, the stock sells at a trailing P/E of 20.3x, trading at a discount compared to an average of 29.5x for the industry. To use another metric, its price-to-book ratio of 18.5x indicates also a premium versus the industry average of 5.16x and the price-to-sales ratio of 4.4x is above the industry average of 11.35x.
Earnings per share (EPS) decreased in the most recent quarter compared to the same quarter a year ago. In the next graph we can see that it has demonstrated a positive trend and we include the stock price because EPS often lead the stock price movement.
Finally, I always like to see one of the most important financial ratios applying to stockholders, the best measure of performance for a firm's management: the return on equity. Let�s compare the current ratio with competitors in the next table:
Johnson & Johnson
As we can see, the firm has a huge ratio and is higher than that shown by comps.
As outlined in this article, the firm�s ROE as well as the good cash flow and the stock price performance are demonstrating the improvement of the company�s strength.
I would recommend investors to consider adding the stock for their long-term portfolios. Hedge fund gurus have also been active in the company in fourth quarter 2013. Gurus like David Dreman (Trades, Portfolio), Steven Cohen (Trades, Portfolio), George Soros (Trades, Portfolio), Ken Fisher (Trades, Portfolio) and Murray Stahl (Trades, Portfolio) have also invested in it.
Disclosure: Victor Selva holds no position in any stocks mentioned.
This article first appeared on GuruFocus.