Pharmaceuticals Stocks

AbbVie Inc Valuation – July 2016 $ABBV

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Companies Benjamin Graham Would Invest In Today – June 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how AbbVie Inc (ABBV) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): AbbVie Inc. (AbbVie) is a research-based biopharmaceutical company. The Company develops and markets therapies that address a range of diseases. The Company operates in pharmaceutical products segment. Its products are focused on treating conditions, such as chronic autoimmune diseases, in rheumatology, gastroenterology and dermatology; oncology, including blood cancers; virology, including hepatitis C (HCV) and human immunodeficiency virus (HIV); neurological disorders, such as Parkinson’s disease; metabolic diseases, including thyroid disease and complications associated with cystic fibrosis, as well as other serious health conditions. AbbVie also has a pipeline of new medicines, including over 50 compounds or indications, such as immunology, virology/liver disease, oncology, neurological diseases and women’s health. Its product portfolio includes HUMIRA, IMBRUVICA, HCV products, additional virology products, metabolics/hormones products, endocrinology products and other products.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of ABBV – July 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $102,169,412,158 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.56 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 29466.67% Pass
6. Moderate PEmg Ratio PEmg < 20 20.03 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 22.19 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.56 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.00 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

ABBV value chart July 2016

EPSmg $3.17
MG Growth Estimate 6.32%
MG Value $66.90
Opinion Fairly Valued
MG Grade B-
MG Value based on 3% Growth $45.91
MG Value based on 0% Growth $26.91
Market Implied Growth Rate 5.76%
Current Price $63.41
% of Intrinsic Value 94.79%

AbbVie Inc is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability over the last ten years, and the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $2.23 in 2012 to an estimated $3.17 for 2016. This level of demonstrated earnings growth supports the market’s implied estimate of 5.76% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

AbbVie Inc performs fairly well in the ModernGraham grading system, scoring a B-.

Stage 3: Information for Further Research

ABBV charts July 2016

Net Current Asset Value (NCAV) -$19.97
Graham Number $17.31
PEmg 20.03
Current Ratio 1.56
PB Ratio 22.19
Current Dividend $2.10
Dividend Yield 3.31%
Number of Consecutive Years of Dividend Growth 4

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Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2016
Total Current Assets $16,622,000,000
Total Current Liabilities $10,662,000,000
Long-Term Debt $0
Total Assets $53,720,000,000
Intangible Assets $32,786,000,000
Total Liabilities $49,077,000,000
Shares Outstanding (Diluted Average) 1,625,000,000

Earnings Per Share History

Next Fiscal Year Estimate $4.64
Dec2015 $3.13
Dec2014 $1.10
Dec2013 $2.56
Dec2012 $3.35
Dec2011 $2.18
Dec2010 $2.65

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $3.17
Dec2015 $2.44
Dec2014 $2.19
Dec2013 $2.54
Dec2012 $2.23
Dec2011 $1.43
Dec2010 $0.88

Recommended Reading:

Other ModernGraham posts about the company

30 Companies in the Spotlight This Week – 5/23/15
Abbvie Inc. Annual Valuation – 2015 $ABBV
34 Companies in the Spotlight This Week – 2/7/15
Abbvie Inc. Quarterly Valuation – February 2015 $ABBV
15 Companies in the Spotlight This Week – 2/1/14

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Amgen Inc Valuation – February 2016 $AMGN
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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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