Is AbbVie Stock a Buy?

Pharmaceutical powerhouse AbbVie (NYSE: ABBV) has been a beast since it spun off from Abbott Laboratories in 2012. Over the past decade, the stock has averaged a dividend yield of 3.5% while raising its dividend by an average of 14% annually. That sustained yield and growth have made shareholders very happy.

For most of those years, AbbVie enjoyed lucrative success with Humira. However, the company's revenue has dipped since Humira lost patent exclusivity in 2023, and the stock price has only increased by 6% over the past two years (not counting dividends).

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Are AbbVie's best years behind it? Or is the company retooling for another stretch of prosperity? Let's decide whether AbbVie is a buy.

One step back, two steps forward

In the pharmaceutical business, one home run can essentially build a company. AbbVie's success with Humira is a textbook example. Humira (adalimumab) is an immunosuppressant drug used to treat several autoimmune diseases, in which a patient's immune system attacks healthy cells. It was a landmark product -- the first fully human monoclonal antibody approved by the U.S. Food and Drug Administration -- and spent years among the world's top-selling drugs.

AbbVie's sales of Humira topped $21.2 billion in 2022 before it lost patent protection in 2023. Once patents expire, cheaper generic versions flood the market. Global Humira sales were $2.2 billion in the third quarter of 2024, a 36% decline year over year. That's an annualized pace of $8.8 billion -- a significant drop from 2022 -- and it's likely to continue shrinking as Humira cedes market share.

A winning sports team sustains success by developing young talent to replace aging stars. That's a good analogy for AbbVie, which must continually create new products to replace treatments whose patents expire.

The great news is that AbbVie has seemingly done that with its new immunology drugs Rinvoq and Skyrizi. These drugs have seen enough success that management has raised their long-term growth projections. Together, Rinvoq and Skyrizi may surpass Humira's best year by 2027:

Image source: AbbVie.

Humira created tremendous shoes to fill, but AbbVie may have done it. Analysts are calling for approximately $63.5 billion in revenue in 2025, the first time AbbVie would surpass $60 billion in sales. It looks like the business has shifted back into growth mode.

Dividends could slow, but growth prospects remain promising

As great as Rinvoq and Skyrizi should be, Humira's continued shrinkage will partially offset their growth. Investors who were hoping for huge dividend increases may want to adjust their expectations. Today, AbbVie's dividend payout ratio is 61% of 2024 earnings. That leaves plenty of room for future increases, but management may want to retain some financial flexibility. AbbVie is still carrying over $71 billion in long-term debt from an acquisition spree that included a $63 billion purchase of Allergan, $10.1 billion for ImmunoGen, and $8.7 billion for Cerevel Therapeutics.

The company's ratio of debt to EBITDA (earnings before interest, taxes, depreciation, and amortization) is about 3.7. This is not a perilously high amount of leverage, but it's also not a situation where you want to tie up all your profits in dividend obligations. The dividend is significant to AbbVie: The company is a Dividend King, with a decades-long history of yearly increases from when it was still part of Abbott Labs.

Investors can probably expect mid- to high-single-digit dividend growth until the balance sheet is in better shape. Still, that's not so bad when you get a 3.6% starting yield.

Is AbbVie a buy?

The business seems poised for long-term growth, and the dividend is solid (even if growth slows a bit). So is the stock worth buying today?

AbbVie had a recent setback in November when it announced poor phase 2 study results for emraclidine. The once-promising drug was a potential blockbuster for treating schizophrenia, and was the primary motive for the $8.7 billion Cerevel Therapeutics deal. Analysts have revised their long-term growth estimates lower since November, but still believe AbbVie is capable of annualized long-term earnings growth of 8%.

The resulting decline in the share price has made the stock's valuation look a bit more attractive in my view. I'd argue that the current level is a fair price (perhaps a bit cheap) for a dividend stock of AbbVie's yield and growth outlook.

The bottom line? AbbVie's post-Humira prospects look far better than investors are giving it credit for. The dividend is rock-solid and should continue growing along with the share price over the coming years. That makes AbbVie a solid buy today.

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Justin Pope has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends AbbVie and Abbott Laboratories. The Motley Fool has a disclosure policy.