What’s Behind The 2x Jump In AbbVie Stock?

AbbVie stock (NYSE: ABBV) has more than doubled in value since early January 2021 – jumping from levels of $90 then to around $195 now – vs. an increase of about 50% for the S&P 500 over this period. This can primarily be attributed to a significant 80% rise in the company’s P/S ratio to 6.4x now, versus 3.6x in 2020. Investors have rewarded ABBV stock thanks to the uptick in its sales despite the biosimilar competition for its blockbuster drug – Humira.

However, the increase in ABBV stock has been far from consistent. Returns for the stock were 32% in 2021, 24% in 2022, and 0% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 — indicating that ABBV underperformed the S&P in 2023.

In fact, consistently beating the S&P 500 — in good times and bad — has been difficult over recent years for individual stocks; for heavyweights in the Health Care sector including JNJ, UNH, and PFE, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.

Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could ABBV face a similar situation as it did in 2023 and underperform the S&P over the next 12 months — or will it see a strong jump? We think ABBV stock is fully priced now. It trades at 6.3x revenues, versus the stock’s average P/S ratio of 4.4x seen over the last three years. Our AbbVie Valuation Ratios Comparison dashboard has more details. While a slight rise in valuation multiple seems justified given the market share gains for its new drugs, we think ABBV stock is now fully valued.

AbbVie’s revenue rose 19% from $45.8 billion in 2020 to $55.0 billion in the last twelve months. The company’s revenue growth has been buoyed by its Allergan acquisition in 2020. AbbVie is best known for its blockbuster drug – Humira – used to treat rheumatoid arthritis and Crohn’s disease, among others. Humira’s sales peaked at $21.2 billion in 2022, before falling 32.2% y-o-y to $14.4 billion in 2023. This can be attributed to the biosimilar competition.

AbbVie, to some extent, can combat the loss of revenue from Humira by market share gains for some of its relatively new drugs – primarily Skyrizi and Rinvoq. These drugs are used to treat plaque psoriasis and rheumatoid arthritis. For perspective, these two products garnered $11.7 billion in 2023, reflecting a solid 53% y-o-y growth. The sales of its anti-depressant – Vraylar – also spiked 35% y-o-y to $2.8 billion in 2023. For the six-month period ending June 2024, Skyrizi and Rinvoq continued their market share gains, with sales rising 50% y-o-y to over $7 billion. AbbVie is also looking at inorganic growth. After its acquisition of Allergan in 2020, it acquired ImmunoGen for $10.1 billion this year, giving it rights to Elahere — an ovarian cancer treatment – with estimated peak sales of over $2 billion. Our dashboard on AbbVie’s Revenue Comparison offers more details on the company’s sales.

Although AbbVie has seen its revenues rise lately, its operating margin has contracted from 27.8% in 2020 to 24.9% now. This clubbed with expenses related to IPR&D and milestones has weighed on its bottom line lately. For the full-year 2024, the company expects its adjusted earnings per share to be in the range of $10.61-10.81, compared to a figure of $11.21 in 2023.

Overall, AbbVie is poised to deliver mid-single-digit average annual top-line growth over the next three years despite the headwinds for Humira. Investors have rewarded the stock with a higher valuation multiple, but is it worth picking now? We don’t think so. We believe that the positives around new drugs are already priced in, and investors willing to enter will likely be better off waiting for a dip. Notably, the average analyst price estimate of $197 for ABBV also aligns with the current market price, implying that the stock is now fully valued.

While ABBV stock looks fully valued, it is helpful to see how AbbVie’s peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

[1] Returns as of 8/29/2024
[2] Cumulative total returns since the end of 2016

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