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Is ABBV a Long-Term Growth Stock Buy With a $27 Billion Sales Projection?

Posted on by The INO.com Team

Pharma company AbbVie Inc. (ABBV), with a market cap of over $300 billion, has recently unveiled its fourth-quarter earnings report. Its revenue for the quarter amounted to $14.30 billion, down 5.4% year-over-year, while its adjusted EPS declined 22.5% from the year-ago quarter to $2.79. But both figures surpassed analysts’ estimates.

Following its 2013 spinoff from Abbott Laboratories, ABBV, under the leadership of CEO Richard Gonzalez, was confronted with the challenge of preventing sales dips amid increasing competition to its top-performing drug, Humira – which at the time accounted for roughly $9 billion in annual sales, making up over half the company's total sales.

Humira achieved staggering success, hitting its peak with $21.23 billion in annual sales in 2022 and accumulating more than $200 billion in lifetime revenue – shattering even the most optimistic Wall Street projections. Market analysts praised Humira's impressive growth trajectory, but the looming patent expirations provoked investor anxiety. Humira's impressive results equipped ABBV with additional resources and time to adapt to a post-Humira future.

Sales of Humira dropped 40.8% year-over-year to $3.30 billion worldwide in the fiscal fourth quarter that ended December 31, 2023. This decline notably outpaced the full-year sales downturn of 32.2% year-over-year, a trend the drug maker attributes to the emergence of biosimilar drugs on the market.

ABBV believes that Humira's fiscal 2023 revenue remains strong at $14.40 billion despite the introduction of biosimilars. As competition from these copycat medications is projected to surge in the upcoming year, ABBV forecasts that sales for Humira will drop to $9.6 billion.

ABBV foresaw the impending loss of exclusivity and strategically diversified its product line. ABBV's strategic plan, upon the entry of Humira biosimilars, aims to weather the initial financial impact in 2024 before regaining momentum in 2025.

To cushion against this looming loss of exclusivity – the most significant event of its kind across the industry to date – ABBV planned to leverage sales of its rapidly growing products, including Humira’s immunology heirs, Rinvoq and Skyrizi. ABBV's two innovative anti-inflammatory medications, Skyrizi and Rinvoq, are used to manage conditions like Crohn’s disease and arthritis.

ABBV's acquisition of Allergan in 2020 and the creation of these new drugs, however, did not entirely abate investors' apprehensions about the long-term viability of ABBV’s products or its ability to maintain sales and earnings growth as consistently as it did during Humira's reign. This residual anxiety has seen the stock oscillating between $134 and $175 over the past two years. Nonetheless, concerns were substantially eased following the company's strong fourth-quarter financial report.

Revenue from Skyrizi and Rinvoq climbed 51.9% and 62.9% year-over-year, respectively. This propelled their combined revenue contribution to $3.65 billion. The company projects the two drugs to generate an impressive $16 billion in sales revenue. In 2027, these medicines could amass $27 billion, thereby outperforming peak earnings from Humira.

Upon detailed examination, Skyrizi could accumulate over $17 billion by 2027, underpinned by increased market share in psoriasis treatment and its growing use in inflammatory bowel disease (IBD).

Rinvoq is also slated for success, with projections suggesting it will reach over $10 billion in revenue in 2027 across rheumatology, IBD, and atopic dermatitis applications. Rinvoq's forecast includes moderate additions from several new treatment areas, onto which ABBV hopes to introduce the drug during the latter half of this decade. These new indications have a combined peak sales capability equivalent to several billion dollars.

ABBV maintains a robust competitive stance with high capture rates, as confirmed by Chief Commercial Officer Jeffrey Stewart. While currently on the lower end of the prescription share spectrum, Stewart remains optimistic about potential growth opportunities. He states there remains significant scope for boosting patient uptake of Rinvoq and Skyrizi, particularly within their existing treatment applications.

Moreover, the company has submitted its Skyrizi application for use in treating ulcerative colitis, with approval anticipated by 2024. Rinvoq is concurrently undergoing Phase 3 trials for additional treatment indications, indicating an avenue for growth in the future. Potential applications for Rinvoq include conditions such as vitiligo, hidradenitis suppurative (HS), and lupus.

Beyond Skyrizi and Rinvoq, there is also ongoing development of next-generation drug options. Lutikizumab, for example, recently displayed beneficial outcomes in a Phase 2 trial in adults experiencing moderate to severe HS and is set to advance to Phase 3.

ABBV's proficiency spans beyond immunology, despite its Oncology division recording a 7.4% year-on-year decrease to $1.51 billion, attributed to competitive pressures on Imbruvica. This trend is expected to prevail for a few more years. Imbruvica's U.S. market share has dwindled in favor of other BTK inhibitors and is among the initial 10 drugs that will be subject to price negotiation for Medicare coverage.

Nevertheless, ABBV's $10 billion ImmunoGen acquisition deal is projected to bolster the company's presence in the solid tumor space – beginning with the already-approved Elahere, a second-line therapy for specific ovarian cancer types. The deal is anticipated to result in R&D synergies across multiple treatments in this area.

ABBV's aesthetics segment has demonstrated resilience, marking a 6.4% year-on-year appreciation, primarily driven by an 11.8% annual increase from Botox cosmetics. Given Botox's impressive market penetration, the aesthetics segment is envisaged to continue trending upwards.

In addition, ABBV's neuroscience division reported a substantial 22.6% year-over-year growth, fueled by successful launches of migraine medications and an extended indication for Vraylar for major depression treatment. Migraine medications Ubrelvy and Qulipta are projected to attain combined peak revenues of $3 billion.

A paramount development in this segment was the $8.7 billion Cerevel Therapeutics acquisition. ABBV's prevailing neuroscience portfolio, in conjunction with its combined pipeline with Cerevel, epitomizes a substantial growth prospect stretching into the next decade.

For the fiscal year 2024, ABBV anticipates its revenue to be $54.2 billion and adjusted EPS between $11.05 and $11.25. This guidance includes a $0.32 per share dilutive impact tied to the proposed ImmunoGen and Cerevel acquisitions, slated for completion around mid-2024.

Analysts predict ABBV's revenue for the same period will reach $54.53 billion, while EPS is projected to hit $11.25 billion.

Following an optimistic quarterly earnings report, a surge was noted in ABBV shares. Eliciting this rise were the post-earnings price target escalations by analysts tracking the trajectory of the pharma company. Wall Street analysts expect the stock to reach $176.53 in the next 12 months, indicating a potential upside of 3.1%. The price target ranges from a low of $135 to a high of $200.

Wells Fargo maintains an overweight rating on ABBV shares, raising the firm's price target to $200. The financial institution highlighted an improving growth narrative for ABBV, as its products – Skyrizi and Rinvoq – are positioned to surpass Humira.

Bottom Line

Global medicine expenditure grew 35% over the past five years, and it is anticipated to surge around 38% by 2028, underlining the increasing demand for medicinal products. Moreover, the escalation in autoimmune diseases, now the third most frequent reason for chronic afflictions in the U.S., has instigated an ascending demand for next-generation immunology drugs. The next-generation immunology drugs market is poised to grow at a 6.1% CAGR by 2029.

Pharma firm ABBV is taking considerable strides to foster investor confidence, exhibiting its ability to succeed Humira, the primary growth engine since its inception as an independent entity. Furthermore, robust sales of Skyrizi and Rinvoq, along with significant oncology and neuroscience acquisitions, have fortified its operational pipeline and enhanced portfolio balance.

Considering market dynamics and drug trajectory, ABBV's projected growth appears feasible. While Humira sales are projected to temper due to escalating biosimilar competition from 2024, consistent gains are expected for the company's immunology franchise post-2024. The adept transition after Humira's exclusivity termination played a pivotal role in the recent upgrade.

In the pipeline, ABBV will require bolstering phase 3 assets, although an improved phase 2 pipeline and recent acquisitions of ImmunoGen and Cerevel enhance the company's long-term outlook. With the ImmunoGen acquisition, optimism surrounds the cancer drug Elahere. Late 2024 or early 2025 should see promising phase 2 data for several Alzheimer’s drugs, potentially paving the way for major new blockbusters.

Moreover, the need for debt to finance acquisitions could potentially impact the company’s predicted net margin. However, improving bottom lines could be seen as the debt diminishes.

Investors relish substantial portfolio returns, especially income investors who prioritize consistent cash flow from liquid investments. ABBV pays an annual dividend of $6.20 per share, yielding 3.68%, far exceeding the industry average of 1.59% and the S&P 500's yield of 1.34%. ABBV's dividend has seen an 8.68% CAGR over the past five years.

Future dividend growth will be contingent on earnings growth and the payout ratio. ABBV's present payout ratio stands at 53.92%, signifying that over 53% of its trailing 12-month EPS was disbursed as dividends.

Additionally, the company has maintained an impressive track record, with a decade-long streak of increasing dividends. Over the past 10 years, its dividend payments grew at a 14.1% CAGR. Its trailing-12-month levered FCF margin of 43.65% notably exceeds the industry average. Moreover, as of September 30, 2023, ABBV had cash and equivalents of $13.29 billion. The overall scenario supports the notion that dividend hikes over the past decade have not impeded cash accumulation.

Moreover, its notable reserve could act as a buffer against unforeseen circumstances. Therefore, this stock presents a solid prospect for passive income generation, reinforcing investors' rationale for the inclusion of ABBV in their portfolios.

Is Bank of America (BAC) Stock About to Plummet Into Collapse?

Posted on by The INO.com Team

The U.S. banking sector is undergoing a significant transformation, echoing societal shifts that saw payphones and video stores disappear into obsolescence. The silent erosion of bank branches has been transpiring within the financial sector for over a decade, beginning in 2010 and intensifying in recent years.

According to the U.S. Federal Deposit Insurance Bureau (FDIC), large commercial U.S. bank venues have sharply declined from 8,000 in 2000 to 4,236 by 2021, further dwindling to 4,194 in 2022. Normative banking procedures have been remarkably altered within this period, as evidenced by the dwindling count of U.S. branch bank sites directly linked to mainstream banks.

As per S&P Global Market Intelligence, U.S. banks closed 149 branches and launched 49 in March, culminating in an overall 78,588 operational branches.

Should this declining trend in bank branch numbers sustain momentum, bank branches could disappear within the next ten years. The Self Financial estimates that the U.S. bank branches will dip dramatically from about 60,000 in 2023 to 15,660 in 2030, with numerical reductions continuing until the projected total elimination of bank branches by 2034.

The national shift is exemplified by the Bank of America Corporation (BAC), the nation’s second-largest bank by assets, mapping plans to reduce the extent of its physical footprint through the closure of several branches across the U.S.

According to the OCC's weekly circular, the Charlotte, North Carolina-based bank is actively pursuing authorization from the Office of the Comptroller of the Currency to close the branches. The applications were filed with the regulator on October 5

It has gotten into the act, closing 5% of its physical locations in Philadelphia. The anticipated closures will have a significant impact nationwide.

Let’s first understand the reason behind the closures and identify why this trend has seen a significant acceleration over the past few years.

Recent years have seen an accelerated rate of bank branch closures, amplified by changing consumer behaviors and evolving banking infrastructures. The advent of the COVID-19 pandemic and subsequent social distancing mandates in 2020 and 2021 catalyzed this trend. As foot traffic was reduced to near zero at local branches, there was a soaring increase in the adoption of digital products and banking services.

Banks are directing more resources toward enhancing their online platforms to meet customer demands for digital banking services. Consequently, the need for physical branches has diminished, prompting banks to adjust their physical footprints constantly. The practical implications include enhanced bottom lines fueled by cost savings and greater investment into technological advancements.

As banks become more digitally savvy, the industry anticipates a continuous drop in the number of branches in operation.

The banking industry's consolidation through mergers and acquisitions has also been instrumental in accelerating this trend. Banks often buy out rivals to reduce overlapping staff, services, and facilities expenses. The result is increased profitability, with the closure of redundant branches being key to these cost-saving measures.

Large regional and national banks predominantly lead branch closure as their extensive networks provide ample cost-reduction opportunities. Nevertheless, banks of all sizes are progressively steering their investments away from physical locations and toward digital platforms.

During BAC’s quarterly earnings call, CEO Brian Moynihan shared that the company's consumer business headcount had decreased from around 100,000 to roughly 60,000 – a decline that continues as digital banking experiences an increased adoption.

As of 2022, a clear preference for online banking among U.S. adults at 78% was evident, while only 29% preferred traditional, in-person banking. The closure of BAC branches is unlikely to impact individual accounts directly; the bank provides several channels that allow customers to access and manage their accounts, including online banking, mobile banking, ATMs, and customer service centers.

However, there is an underlying concern that BAC could alienate less tech-proficient customers like senior citizens or those with disabilities. In certain communities, the closure of neighborhood banks has caused substantial damage to local economies and heightened existing financial inequities.

The ramifications of banks disappearing from communities extend beyond convenience — for instance, residents are forced to commute further to make elementary transactions such as deposits or withdrawals. This could potentially instigate a shift of these customers to other banking institutions.

BAC might consider implementing measures such as a fee waiver for retained customers or an added fee for closing an account within a specified timeframe. Both strategies could deter clients from changing banks and concurrently generate some revenue.

Let’s look at other factors investors could consider before investing in BAC.

BAC’s investment holdings presently display considerable unrealized losses, falling short of competitive rates since 2007. As of June 30, 2023, paper losses on their debt securities exceeded $109 billion, which surged to $136.22 billion by the end of the third quarter.

With approximately $603.37 billion entangled in held-to-maturity securities, the bank's considerable holdings in these low-yielding assets curb its capability to amplify profits through cash investments in money markets or higher-return assets.

BAC is anticipated to witness lower overall yields on its securities book for the foreseeable future. However, analysts do not expect the necessity for the bank to liquidate these holdings, thus avoiding additional losses.

The bank's securities portfolio tilts heavily toward debt maturing after ten years. If the Federal Reserve implements another potential rate hike, the valuation of these holdings could decline further, possibly leading to a decrease in earnings from BAC's investments.

Conversely, if interest rates stabilize or gradually decline, share prices may improve, given that the long-term securities held by the bank are expected to increase in value.

Furthermore, BAC reported a 4.5% year-over-year increase in net interest income in the fiscal third quarter of 2023, exceeding analyst expectations. However, it still lags behind its competitors, JP Morgan and Wells Fargo.

BAC has amassed unrealized losses amounting to $131.6 billion on securities, and even with government guarantees, it does raise red flags. Yet, with over $3 trillion in assets and $1.9 trillion in deposits as of September 30, 2023, BAC has sufficient financial stability to weather the storm.

For the average bank customer, an unrealized loss of this magnitude may not be of immediate concern; however, it does present a potential issue for investors. Coupled with the advantage of its massive insured customer deposits, BAC has protection against the kind of deposit flights that regional banks have undone.

Furthermore, BAC’s stocks declined about 11% year-to-date but trades above the 50-, 100-, and 200-day moving averages. However, Wall Street analysts expect the stock to reach $33.76 in the next 12 months, indicating a potential upside of 14.2%. The price target ranges from a low of $27 to a high of $51.

Furthermore, several institutions have recently modified their BAC stock holdings. Institutions hold roughly 69.9% of BAC shares. Of the 2,771 institutional holders, 1,148 have increased their positions in the stock. Moreover, 146 institutions have taken new positions (37,323,335 shares).

Bottom Line

BAC continues to streamline its operations, shifting toward a digital business platform as it grapples with decreased branch traffic and escalating maintenance costs.

The strategic shift may leave customers without access to a local branch, highlighting critical considerations for the effectiveness of the traditional cash system and underscoring the potential impact on sections of marginalized society that depend heavily on physical banking services.

Additionally, the prevailing macroeconomic volatility and high interest rates, projected to persist, raise concerns about an increase in BAC's unrealized losses, coupled with the potential customer transition to treasuries or Money Market Funds.

Despite these challenges, shareholders can take solace in knowing that BAC's management seems to be performing skillfully. Additionally, the era of high interest rates has resulted in a net benefit so far.

Interestingly, BAC’s interest-bearing deposits reached $1.31 trillion, reflecting depositor trust in its financial standing.

Although investor sentiment slumped over the past year, BAC maintains an impressive balance sheet fortified by sturdy profitability. Furthermore, it offers an enticing dividend yield of 3.25% on the current share price.

So, it could be wise for investors to hold on to the stock and look forward to a gradual capital appreciation. The unrealized losses might be less daunting for long-term investors focused on continuous dividend payouts.

However, investors seeking steady revenue should proceed with caution. While BAC's forward dividend yield stands at an attractive 3.25%, exceeding the four-year average yield of 2.44%, it still falls short of the 3.78% sector median.

Considering prevailing circumstances, it may be prudent for new investors to wait for a better entry point in the stock.

Investing Legends Buying Up Stocks

Posted on by The INO.com Team

For today's guest blog post I decided to contact Christopher Hill from Investorazzi.com. I emailed him and asked him his opinion on stocks, and what the experts are doing. Christopher has been running Investorazzi.com for quite a while now and to say I'm a fan is an understatement. Check out his blog post below and check out his site...it's worth the visit!

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Investing Legends Buying Up Stocks

To say U.S. equities have been beaten up lately is an understatement.  As I write this post Monday evening:

* The Dow Jones Industrial Average is off almost 38 percent for 2008 (See CHART here)
* The Standard & Poor's 500 Index is down 42 percent for the year (See CHART here)
* The Nasdaq Composite Index is now at a five-year low (See CHART here)

Turn on the news and you’d think investors couldn't get out of the stock market fast enough.  Remember that old story about someone's cousin losing their shirt from investing in commodities?  I suppose some are saying that about equities these days.

Yet, in times like these I remember a certain saying.  "Buy when there's blood in the streets."  Or, as legendary investors Jeremy Grantham and Warren Buffett might say, on the Street.  For those of you who aren't familiar with Jeremy Grantham, he is the Chairman of Boston-based GMO, a privately-held global investment firm with $152 billion under management as of the end of 2007.  The British money manager, whose clients have included U.S. Vice President Dick Cheney and former U.S. presidential candidate John Kerry, has made some terrific calls in the past quarter century:

* In 1982, said the U.S. stock market was ripe for a “major rally.” That year was the beginning of the longest bull run ever.
* In 1989, called the top of the Japanese bubble economy.
* In 1991, predicted the resurgence of U.S. large cap stocks.
* In 2000, correctly called the rallies in U.S. small cap and value stocks.
* In January 2000, warned of an impending crash in technology stocks, which took place two months later.
* In April 2007, nailing the current crisis, he wrote to shareholders, "From Indian antiquities to modern Chinese art, from land in Panama to Mayfair; from forestry, infrastructure and the junkiest bonds to mundane blue chips; it’s bubble time!"

As for Warren Buffett?  Well, who hasn't heard of the "Oracle of Omaha?"  Buffett, the richest person in the world with more than $62 billion (according to the 2008 Forbes list), amassed his multibillion dollar fortune mainly through investing in stocks and buying companies through Berkshire Hathaway, where he serves as Chairman.

These days, Grantham and Buffett both sense blood on the Street--- and are acting accordingly.  Paul J. Lim of the New York Times wrote this past Sunday:

“Mr. Grantham said in an interview that even though his firm began buying stocks in early October, after prices fell to attractive levels, the market had a tendency to “overshoot” during sell-offs… Mr. Grantham noted that GMO began buying only after its portfolios had fallen below some key thresholds. For example, in GMO’s global balanced portfolio of stocks and bonds, the firm’s minimum allocation to equities is usually 45 percent. But after the market sell-off, that equity allocation dipped to around 38 percent. So once stock prices began to look attractive, GMO started rebalancing back into what it regards as the most undervalued types of equities: emerging markets stocks and high-quality domestic blue chip shares. After a few rounds of purchases, stocks now make up around 55 percent of GMO’s global balanced portfolio.

Mr. Grantham says that although he doesn’t know how well he timed his purchases, ‘we do know that seven years out, these will be good purchases for us.’”

Even if stock prices continue to decline, Grantham told Douglas Appell of Pensions & Investments back on October 27, he still plans on buying more equities.  Appell wrote:

“Going forward, Mr. Grantham said GMO will be ‘steady buyers as the market goes down.’ The firm risks being too early, but will be in position ‘to make a ton of dough’ when the inevitable recovery comes, he said.”

Like Grantham, Buffett has also been actively acquiring shares of companies.  And like the British investor, he hasn't made a secret of his intentions.  In fact, back on October 17 he wrote in the New York Times:

“The financial world is a mess, both in the United States and abroad. Its problems, moreover, have been leaking into the general economy, and the leaks are now turning into a gusher. In the near term, unemployment will rise, business activity will falter and headlines will continue to be scary.

So … I’ve been buying American stocks. This is my personal account I’m talking about, in which I previously owned nothing but United States government bonds. (This description leaves aside my Berkshire Hathaway holdings, which are all committed to philanthropy.) If prices keep looking attractive, my non-Berkshire net worth will soon be 100 percent in United States equities.”

And what was it that triggered Buffett's latest spending spree?  The man some call “The World’s Greatest Investor” explained:

“A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors.”

Blood on the Street, perhaps?  Morgan Housel of the financial website Motley Fool wrote Monday:

“What's the Oracle been up to lately? In the past quarter, Berkshire purchased about 24 million shares of ConocoPhillips (NYSE: COP), upping its existing stake to 84 million shares -- currently worth just less than $4 billion. As of the filing date of Sept. 30, ConocoPhillips stood as Berkshire's fourth-largest common stock holding, behind Wells Fargo (NYSE: WFC), Coca-Cola (NYSE: KO), and Procter & Gamble (NYSE: PG).

That's a pretty serious vote of confidence. Conoco shares have crashed more than 40% in the past three months, as global economies screech to a halt. In the short term, that pullback is probably justified -- energy was getting ahead of itself for a while. So did Buffett buy at the peak? Nah. For long-term investors who want to make the bold assumption that energy isn't just a passing fad, there are some serious, serious bargains being made right now.

Berkshire's other purchases in the quarter included a new 2.9 million-share investment in electrical goods manufacturer Eaton, as well as a 1.8 million-share increase in its existing stake in NRG Energy (NYSE: NRG).”

Should stock prices continue to fall, I have a feeling we’ll hear a lot more about these two investing legends--- especially regarding their latest acquisitions.

Christopher Hill

Editor Investorazzi.com

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Fed, central banks cut rates to aid world economy

Posted on by lindsay

By JEANNINE AVERSA

Associated Press Economic Writer (AP:WASHINGTON) The Federal Reserve and six other major central banks from around the world slashed interest rates Wednesday in an attempt to prevent a mushrooming financial crisis from becoming a global economic meltdown.

The Fed reduced its key rate from 2 percent to 1.5 percent. In Europe, which also has been hard hit by the financial crisis, the Bank of England cut its rate by half a point to 4.5 percent and the European Central Bank sliced its rate by half a point to 3.75 percent.

Also cutting rates were the central banks of China, Canada, Sweden, and Switzerland. The Bank of Japan said it strongly supported the actions.

"The recent intensification of the financial crisis has augmented the downside risks to growth," the Fed said in explaining the coordinated action.

The Fed action will reduce borrowing costs almost immediately for U.S. bank customers whose home equity and other floating-rate loans are tied to the prime interest rate. Bank of America, Wells Fargo and other banks cut their prime rate by half a point to 4.5 percent after the Fed announcement.

White House spokesman Tony Fratto welcomed the cooperation among the Fed and other countries' central banks to battle the crisis. "It's important and helpful that central banks are working in a coordinated way to deal with stress in the financial system," Fratto said.

But analysts were cautious about the impact of the central banks' coordinated action.

"At first blush, while this is a big step, it is unlikely to prove sufficient to stem the rot. Additional rate cuts are likely and further measures to inject liquidity and re-capitalize banks are needed," said Marc Chandler, global head of currency strategy at the investment firm Brown Brothers Harriman.

The rate cuts came against a backdrop of increasing anxiety in global financial markets. Investors have been fleeing shares on worries that neither the Fed, nor other central banks, could move fast enough to stop the rising turmoil.

To read the rest of this story click here: http://club.ino.com/trading/fed-central-banks-cut-rates-to-aid-world-economy-cont/