Key Points
One analyst sees expanded uses for Rinvoq and Skyrizi propelling AbbVie stock to as much as $315 per share.
This bull case makes sense and could be bolstered by AbbVie's further efforts to expand its drug pipeline.
Other factors like AbbVie's strong dividend growth record suggest merit in making it a long-term investment.
On Sept. 10, HSBC analyst Rajesh Kumar maintained his "buy" rating on AbbVie (NYSE: ABBV), raising his price target on the pharmaceutical company's shares from $300 to $315 per share. Recently, other sell-side firms, such as Wolfe Research, have raised their price targets above $300 per share.
However, with AbbVie changing hands for around $262 per share, this price target nonetheless appears aggressive compared to other major pharmaceutical stocks. Even so, the rationale for it remains reasonable. It all has to do with two of the company's latest successful drug products: Skyrizi and Rinvoq.
Missed Nvidia in 2009? This Rare Signal Is Flashing Again. In 2009, a "Double Down" signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same "Total Conviction" signal is flashing for a company 1/100th the size of Nvidia. Continue »
Image source: Getty Images.
AbbVie, HSBC, and the $315 per share bull case
HSBC analyst Rajesh Kumar's bull case for AbbVie is based on the growing approved indications for Skyrizi and Rinvoq. These pending expanded use cases include the use of Rinvoq to treat vitiligo and the release of a more convenient subcutaneous induction option for Skyrizi to treat Crohn's disease.
Kumar believes that these pending pipeline readouts will enable the company to raise peak sales guidance for both products, which could shift AbbVie's expected earnings growth rate "from the low mid-single digits" to the "high mid-single digits," a level of growth acceleration that will likely lead to a rerating for shares.
Adjusting for the one-time impact of recent pipeline drug purchases, AbbVie trades at around 16 times forward earnings. This suggests that, as the growth catalyst plays out, Kumar believes that AbbVie could rerate to a forward price-to-earnings multiple in the high-teens to low-20s range. Better yet, while Kumar's bull case focuses primarily on this catalyst, another factor could positively affect AbbVie's performance in the coming years.
Alongside the prospect of label expansion for these two drugs, AbbVie is further pivoting into immunology, notably through its recent $10.9 billion acquisition of Apogee Therapeutics. This is the aforementioned pipeline deal that will temporarily affect earnings this year, but could drive earnings growth in the years ahead.
Here's another way AbbVie could surge in the long run
The "known unknown" regarding whether Skyrizi and Rinvoq sales could offset the loss of Humira's patent exclusivity has been more or less resolved. Last quarter, Skyrizi generated $5.5 billion in sales, while Rinvoq generated $2.5 billion in sales. Considering that Humira generated just $756 million in sales last quarter, AbbVie's new flagship products are generating 10 times as much revenue as its former legacy flagship drug.
Now, with label expansion for these two drugs, coupled with the further build-out of AbbVie's pipeline, there is far less uncertainty around AbbVie shares. Yet while all of this is a strong setup for a strong run in the years ahead, it may not play out exactly as Kumar envisioned in his recent research note. While AbbVie's shares could surge further on stronger-than-expected long-term sales growth, note that the stock, at around 16 times forward earnings, already trades at a premium to the low- to mid-teen valuations of many other pharmaceutical stocks.
In other words, it would be easier to see AbbVie rerated from 12 to 16 times earnings on the expanded label, but not necessarily a rerating from 16 to 20 times forward earnings. That said, even if price appreciation doesn't arrive as rapidly as Kumar anticipates, other strengths could pave the way for strong long-term returns for shares.
Besides appreciation potential, don't forget AbbVie's status as one of the blue chip dividend stocks. With a 2.6% forward dividend yield, AbbVie has raised its dividend for 13 consecutive years, ever since its spinoff from Abbott Laboratories, itself one of the Dividend Kings, in 2013. Dividend Kings are stocks that have increased their dividend payouts for at least 50 consecutive years.
Over the past three years, dividend growth has averaged between 5% and 6%. Considering these additional strengths, keep in mind that AbbVie shares could still perform well, even if Kumar's bull case doesn't go off without a hitch.
HSBC Holdings is an advertising partner of Motley Fool Money. Thomas Niel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends AbbVie. The Motley Fool recommends HSBC Holdings. The Motley Fool has a disclosure policy.