AbbVie Inc.

 

ABBV Details
 
AbbVie Completes Acquisition of Allergan: Headquartered in North Chicago, Illinois, AbbVie Inc. (NYSE: ABBV) is one of the top research-based biopharmaceutical companies worldwide, which is involved in developing and marketing advanced treatments that tackle complex and serious diseases. On 8 May 2020, the company stated that it has completed its long-standing acquisition of Allergan plc, post the acceptance of regulatory approval from all government authorities along with the nod from the Irish High Court. The acquisition was announced in June last year, wherein ABBV had decided to buy Allergan forroughly $63 billion in cash and stock. AbbVie is offering $120.30 in cash and 0.866 of its shares to Allergan’s shareholders, for a total consideration of $193.23 per share of Allergan (based on the closing price of ABBV's share of $84.22 on 7 May 2020). 
 
Rationale for the Deal: AbbVie is the producer of the world’s best-selling drug Humira and Allergen is the manufacturer of Botox. AbbVie’s rationale behind the Allergan deal is to add a new epic product to its portfolio, Botox, ahead of generic competition for its blockbuster inflammatory medicine, Humira. AbbVie is profoundly reliant on Humira and is looking to unveil more than 20 new products of marketed drugs before Humira biosimilar competition commences in the United States in 2023. In whole, the Allergan buyout should expand AbbVie’s revenue base to markets outside AbbVie’s present drug collection and accelerate its non-Humira business. Further, AbbVie assumes the acquisition to provide significant cash flow generation. AbbVie and Allergan together generated operating cash flow of $19 billion in 2018 and ABBV is looking to use the new cash flow to decrease its debt and continue its dividend growth, which motivates investors to be happy. This expanded on-market portfolio will drive the current AbbVie growth platform, excluding Humira, to ~$30 billion in revenues in FY20, with joint revenues of ~$50 billion in the same time span. The company expects the acquisition to be immediately accretive and to facilitate combined savings of over $2 billion in year 3.
 
1QFY20 Key Financial Highlights: During the quarter, the company reported earnings of $2.42 per share, up from $2.14 per share reported in the year-ago quarter. Meanwhile, the company’s revenues stood at $8,619 million, increasing 10.1% year over year. The company’s revenues and earnings benefited from stocking benefit related to the COVID-19 pandemic. Revenues from Humira stood at $4.7 billion, up 6.4% on an operational basis. Humira’s sales in the United States soared 13.7% and came in at $3.66 billion. However, revenue from Humira went down 12.8% operationally in the international markets and came in at ~$1 billion. During the quarter, adjusted gross margin stood at 82.7%. Adjusted SG&A expenses as a percentage of net revenues stood at 18.6%, whereas adjusted R&D expense came in at 14.3% of net revenues, indicating investments in all stages of its pipeline. During the quarter, adjusted operating margin stood 49.8%.
 

Key Highlights (Source: Company Reports)
 
Outlook: For FY20, the company anticipates adjusted EPS to be in the range of $9.61-$9.71, depicting an increase of 8.1% at the mid-point. 
 
Valuation Methodology:EV/EBITDA Multiple Based Relative Valuation (Illustrative)

 EV/EBITDA Based Valuation (Source: Refinitiv, Thomson Reuters)
 
Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months
 
Stock Recommendation: The stock of ABBV closed at $87.9 with a market capitalization of ~$129.8 billion. The stock made a 52-week low and high of $62.55 and $97.86, respectively, and is currently trading above the average of this range. At the closing price of $87.90, current yield for the stock stands at 5.62%. The stock has given returns of ~10.22% and 13.49% in the last one month and one year, respectively. The business witnessed decent first-quarter results with both top and bottom-line increasing on a year over year basis. ABBV remains on track to benefit from robust demand for essential medicines amid COVID-19 impact. Adding Botox, the most popular cosmetic procedure in the U.S., to its portfolio is a decent step for AbbVie to diversify.Considering the above factors, we have valued the stock using EV/EBITDA multiple based illustrative relative valuation method and arrived at a target price with an upside of lower double-digit (in % terms). For the purpose, we have taken peers like Merck & Co Inc (NYSE: MRK), Pfizer Inc (NYSE: PFE), and Eli Lilly and Co (NYSE: LLY), to name few. Hence, we recommend a “Hold” rating on the stock at the closing price of $87.90, up 4.69% on 11 May 2020.
 
 
ABBV Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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