ABBV’s Earnings Drop But Billionaire Investors Remain Unfazed
In the long run, dividend-paying stocks often outperform non-dividend-paying companies. Over the 50 years, the average annual return for non-dividend stocks in the $S&P 500(.SPX)$ was just 4.27%, while dividend stocks delivered an average annual return of 9.17%.
In Q2, hedge funds managed by billionaires Israel Englander and Igor Tulchinsky made significant purchases of shares in $AbbVie(ABBV)$ , a dividend-paying pharmaceutical giant.
Englander's Millennium Management fund increased its stake in AbbVie by 682% (about 854,846 shares), while Tulchinsky's Worldquant Millennium Advisors established a new position with a purchase of 229,419 shares.
With net worths exceeding $1 billion each, what motivated Tulchinsky and Englander to buy AbbVie shares? And should ordinary investors follow suit?
Reasons to Buy AbbVie Now
AbbVie is a leading pharmaceutical company with multiple blockbuster drugs, such as Skyrizi, an injectable treatment for psoriasis, Crohn's disease, and ulcerative colitis, launched in 2019. In Q2, Skyrizi's sales soared 45% year-over-year to an annualized $10.9 billion, with U.S. patents expiring in 2033.
AbbVie has another significant growth driver: Rinvoq, a 2019 launch for arthritis treatment, currently generating annualized sales of $5.7 billion. Additionally, the FDA approved Qulipta last year for the prevention of chronic migraines. Qulipta′s Q2 annualized sales reached $600 million and are expected to surpass $2 billion within a few years.
Since its spin-off from Abbott Laboratories in 2013, AbbVie's dividend has grown at an average annual rate of 13.1%, with a current dividend yield of 3.2%. Looking ahead, high-growth blockbuster drugs like Skyrizi, Rinvoq, and Qulipta will drive the company's earnings upwards.
Reasons for Caution
While AbbVie has rapidly increased its dividend in the past, investors expecting significant dividend growth in the coming years may be disappointed.
In the first half of 2024, the company's total sales grew by just 2.6% year-over-year, and its adjusted earnings per share for this year will be between $10.67 and $10.87, representing a 3% decline at the midpoint of this range.
AbbVie's former flagship product, Humira, contributed $14.4 billionin revenue last year. However, with cheaper biosimilars entering the market in 2023, Q2 sales annualized to 11.3 billion.
Additionally, sales of another blockbuster drug, Imbruvica for blood cancer, declined 8% year-over-year in the second quarter to an annualized $3.3 billion. Although Imbruvica still has patent protection, BeiGene's new-generation drug Brukinsa is gaining ground.
Should You Buy Now?
Based on the current share price, AbbVie trades at about 17.9 times the mid-point of management's 2024 earnings guidance. This is a reasonable valuation if the pharmaceutical giant can maintain its performance in the coming years.
Furthermore, the earnings pressure from Humira and Imbruvica is easing, and with the momentum of Skyrizi and Rinvoq, AbbVie is expected to resume its high-growth trajectory soon, with profits and dividends growing rapidly over the next one to two years.
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