Is AbbVie Stock a Buy?

With its shares offering a total return of nearly 49% over the last three years, trumping the market's return of 33%, AbbVie (NYSE: ABBV) is a powerhouse big pharma that has a lot of upside to offer to investors.

While there's no guarantee the next three years of the company's life will outperform the market, there's a solid thesis for why it's not improbable. Here's what you need to know about this stock to decide whether you want to own it.

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The medium-term picture looks good here

AbbVie is notable among the major pharma businesses for its smooth execution of its carefully planned pipeline strategy. Assuming that reputation holds up, it's a significant reason to think about buying the stock.

In particular, the next handful of years will see two new blockbuster drugs finish emerging in the portfolio: Skyrizi and Rinvoq. In the third quarter, revenue from Rinvoq and Skyrizi was more than $4.8 billion.​​ By 2027, these medicines are expected to bring in a total of more than $27 billion in sales annually across a range of different indications in rheumatology, dermatology, psoriatic diseases, and inflammatory bowel diseases.

Given ongoing research and development (R&D) work in clinical trials to expand the set of approved indications that they can treat, management calculates that the two will continue to see their sales grow into the early 2030s at a minimum. For reference, AbbVie's trailing 12-month revenue was $55.3 billion, so the growth of Skyrizi and Rinvoq represents a major addition to the top line that'll likely drive the stock upwards for years to come.

In 2025, the company anticipates at least five of its programs will get regulatory approval. The next year after that could be just as good. And with plenty of business development activity taking place this year, forging new development collaborations and licensing new pharmaceutical assets from biotechs (or acquiring them), management is obviously planting the seeds for the good times to continue after that through the end of the decade.

Appreciate that this stock isn't a bargain right now

Despite the positive factors in play for AbbVie, there are a couple of things investors need to accept if they're going to buy the stock.

First, this stock isn't cheap -- it's on the pricier side. Its price-to-earnings (P/E) multiple is 60, substantially higher than the pharmaceutical industry's average P/E of 24. That means investors expect the business to grow at a faster-than-average pace over the near term. If that expectation is proven false, the stock may be in for either a period of stagnation or an outright tumble.

Second, investors need to accept that at least for now the source of the next big leg of the company's growth after the current one is undetermined. It's true that there's a clear roadmap for growing through roughly 2030 based on penetrating the markets that are available to compete in today, given its portfolio of commercialized medicines and its late-stage pipeline programs.

After that, the issue is murkier, and it's uncertain if the early stage pipeline it has today will be able to continue to deliver as those programs, most of which are in oncology, mature. Management has yet to guide investors on its framework for thinking about how to compete in the next decade, but that guidance will probably arrive sometime in the next two or three years.

However, most pharma investors are comfortable with such a degree of uncertainty in the long term. There's nothing stopping a concrete strategy from emerging, and it isn't as though it needs to be completed and ready to go in the next year or two.

So if you can make peace with those two factors, AbbVie's stock is worth buying today. Just remember that it's the most likely to deliver the biggest financial benefits to shareholders who retain their shares for a long period so as to capture the growth of its dividend and its stock buyback programs.

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Alex Carchidi has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends AbbVie. The Motley Fool has a disclosure policy.