AbbVie (ABBV 0.65%) is a top healthcare company valued at nearly $290 billion. It has a diverse business that generates revenue from many different therapeutic areas. Its flagship product is the immunological drug Humira, which has already earned him a whopping $15.7 billion in his first nine months of the year.
But Humira is both the company’s biggest product and the company’s biggest source of concern. Investors are concerned about the company’s patent heft and loss of exclusivity, which could start shaving market share as early as next year. So, to diversify the business and offset some of that risk, AbbVie acquired Botox maker Allergan for a whopping $63 billion in 2020. If you buy shares after the deal is done, then:
AbbVie completed the acquisition of Allergan on May 8, 2020.
It’s been more than two years since AbbVie completed what it called a “transformational acquisition” of the Botox maker in 2020. The deal diversifies AbbVie into a new segment called aesthetics, offering significant growth opportunities. Shares of AbbVie closed at $83.96 at the time the deal closed. At that price, his $25,000 investment in the healthcare business would mean he could buy about 298 shares.
Since then, the stock has skyrocketed, and AbbVie shares are now trading at about $160, nearly doubling in value. That makes a $25,000 investment now worth about $48,000. And that doesn’t take into account the company’s dividend, yielding his 3.7%. Taking that return into account, the investment is worth about $54,000.
Why are investors bullish on AbbVie?
Over the past few years, AbbVie’s business has experienced significant growth. In addition to the significant increase in earnings, partly due to the acquisition of Allergan, the company’s earnings also improved.
As profits increase, so does the company’s valuation, assuming investors pay similar multiples as in the past. For AbbVie, investors are now paying a higher premium for the business.
Investors see more value in companies due to company diversification. In addition, his Skyrizi and Rinvoq, new immunological drugs, reduce some of the risk for investors. That’s because combined sales for this year are his $5.3 billion, and management expects his two peak earnings to be higher than his Humira. By comparison, the company’s revenue from Botox-related products in the same period totaled him just under $4 billion.
Investors are willing to pay a higher premium for the business, reassured by knowing that AbbVie’s future is a little more secure than it seemed just a few years ago.
Is AbbVie still available for purchase?
AbbVie shares are trading at 14 times future earnings (based on analyst estimates). That’s below the healthcare average of 17, suggesting it could be a good acquisition, even with the massive profits AbbVie has racked up over the past few years.
Healthcare stocks not only make great growth investments, they also yield 3.7%. S&P 500 At 1.7% on average, it could be a good source of recurring income for the portfolio. Overall, AbbVie is a solid long-term investment that you can buy and hold for years.
David Jagielski has no positions in any of the mentioned stocks. The Motley Fool has no positions in any of the companies mentioned. The Motley Fool’s U.S. headquarters has a disclosure policy.