Over the past six months, AbbVie’s shares (currently trading at $211.15) have posted a disappointing 9.8% loss, well below the S&P 500’s 11.5% gain. This might have investors contemplating their next move.
Following the drawdown, is now an opportune time to buy ABBV? Find out in our full research report, it’s free.
Why Does AbbVie Spark Debate?
Born from a 2013 spinoff of Abbott Laboratories' pharmaceutical business, AbbVie (NYSE: ABBV) is a biopharmaceutical company that develops and markets medications for autoimmune diseases, cancer, neurological disorders, and other complex health conditions.
Two Things to Like:
1. Economies of Scale Give It Negotiating Leverage with Suppliers
Larger companies benefit from economies of scale, where fixed costs like infrastructure, technology, and administration are spread over a higher volume of goods or services, reducing the cost per unit. Scale can also lead to bargaining power with suppliers, greater brand recognition, and more investment firepower. A virtuous cycle can ensue if a scaled company plays its cards right.
With $62.82 billion in revenue over the past 12 months, AbbVie is one of the most scaled enterprises in healthcare. This is particularly important because therapeutics companies are volume-driven businesses due to their low margins.
2. Excellent Free Cash Flow Margin Boosts Reinvestment Potential
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
AbbVie has shown terrific cash profitability, enabling it to reinvest, return capital to investors, and stay ahead of the competition while maintaining an ample cushion. The company’s free cash flow margin was among the best in the healthcare sector, averaging an eye-popping 35.7% over the last five years.
One Reason to be Careful:
Long-Term Revenue Growth Disappoints
Examining a company’s long-term performance can provide clues about its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Unfortunately, AbbVie’s 4.6% annualized revenue growth over the last five years was mediocre. This wasn’t a great result compared to the rest of the healthcare sector, but there are still things to like about AbbVie.
Final Judgment
AbbVie’s positive characteristics outweigh the negatives. After the recent drawdown, the stock trades at 14× forward P/E (or $211.15 per share). Is now the time to initiate a position? See for yourself in our in-depth research report, it’s free.
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