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Interest rates remain historically low even though U.S. Treasury yields have climbed recently and are well above their early covid levels. The yield environment will likely continue to favor stocks for the foreseeable future even when the Fed starts to taper and lift its core interest rate.
Investors in search of stable income should consider strong dividend-paying stocks, with solid yields. Pharmaceutical standout AbbVie ABBV appears to be worth buying as a long-term play, with it set to release its Q3 financial results on Friday, October 29.
Business Basics & Near-Term Outlook
AbbVie is prepared for a bright future even as patent protections run out for one of the world’s best-selling drugs, Humira—biosimilars are available outside of the U.S., with domestic competition to start in 2023. AbbVie readied itself for a post-Humira world through its $63 billion acquisition of Allergan last May.
ABBV’s deal brought Botox and other popular drugs into a diversified medicine cabinet that includes immunology, oncology, neuroscience, a strong R&D pipeline, and much more. CEO Richard Gonzalez said earlier this year that it’s “on the cusp of potential commercial approvals for more than a dozen new products or indications over the next two years–including five expected approvals in 2021.”
ABBV’s FY20 revenue surged 38%, driven by its Allergan deal. Most recently, it matched our second quarter EPS estimates and raised its full-year outlook on the back of strong business momentum.
Zacks estimates call for the firm’s 2021 revenue to surge over 23%, with FY22 set to jump another 7% higher to come in at over $60 billion. Meanwhile, its adjusted earnings are projected to climb 20% and 10.4%, respectively during this stretch.
ABBV has climbed 80% over the past five years to outpace its Large Cap Pharma industry’s 56%. The stock is also up 30% in the last 12 months, but its recent underperformance could set up a more enticing entry point. AbbVie closed regular trading hours Monday 10% below its late-August records at $108.50 a share.
The recent pullback has pushed it below both its 50-day and 200-day moving averages and it sits beneath neutral RSI levels of 50 at 43. This could give it room to climb, with the S&P 500 back at new highs. And its current Zacks consensus price target of $127.64 a share marks 17% upside from its current levels.
On the valuation front, ABBV trades at a big discount to its industry at 7.9X forward 12-month earnings vs. 14.7X. Wall Street is also rather bullish on the stock, with nine of the 12 brokerage recommendations Zacks has at “Strong Buys,” with nothing below a “Hold.”
The firm has raised its dividend by 225% since 2013. And its current $1.30 a share dividend yields 4.79% to blow away its industry’s 2.56% average, as well as the 30-year U.S. Treasury’s 2.1%, and the S&P 500’s 1.24%.
AbbVie’s yield also easily top’s Johnson & Johnson’s JNJ 2.6%, Merck’s MRK 3.2%, and other big pharma names. The payout is more impressive since it’s not artificially inflated by a falling stock price over an extended period of time.
AbbVie lands a Zacks Rank #3 (Hold) at the moment, alongside its “A” grade for Value in our Style Scores system. Investors looking for a solid dividend stock, with strong fundamentals that captured Warren Buffett and Berkshire Hathaway’s attention last year, might want to consider buying ABBV.
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