On July 27, 2023, AbbVie Inc (ABBV, Financial) experienced a day's change of 5.13%, with an Earnings Per Share (EPS) of 4.23. The question at hand is: Is this stock modestly overvalued? To answer this, we delve into a comprehensive valuation analysis. We invite you to read on for an in-depth understanding of AbbVie's current market position.
Introduction to AbbVie Inc (ABBV, Financial)
AbbVie is a pharmaceutical firm with significant exposure to immunology and oncology. The company's top drug, Humira, accounts for nearly half of its current profits. AbbVie was spun off from Abbott in early 2013, and its recent acquisition of Allergan has introduced several new drugs in aesthetics and women's health. With a stock price of $149.17 and a GF Value of $131.46, AbbVie (ABBV) appears to be modestly overvalued.
Understanding AbbVie's GF Value
The GF Value is a proprietary measure that calculates a stock's intrinsic value. The GF Value Line indicates the stock's ideal fair trading value. It is derived from historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. If the stock price is significantly above the GF Value Line, the stock may be overvalued and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, the stock may be undervalued and have high future returns.
With a current price of $149.17 per share and a market cap of $263.2 billion, AbbVie appears to be modestly overvalued. This suggests that the long-term return of its stock is likely to be lower than its business growth.
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Assessing AbbVie's Financial Strength
Companies with poor financial strength pose a high risk of permanent capital loss. To avoid this, investors must research and review a company's financial strength before purchasing shares. AbbVie's cash-to-debt ratio is 0.11, which ranks worse than 84.23% of companies in the Drug Manufacturers industry. The overall financial strength of AbbVie is 4 out of 10, indicating that its financial strength is poor.
Profitability and Growth of AbbVie
Investing in profitable companies, especially those with consistent profitability over the long term, is less risky. AbbVie has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $56.7 billion and Earnings Per Share (EPS) of $4.23. Its operating margin is 29.73%, which ranks better than 94.59% of companies in the Drug Manufacturers industry. Overall, the profitability of AbbVie is ranked 10 out of 10, indicating strong profitability.
Growth is a crucial factor in the valuation of a company. The 3-year average annual revenue growth of AbbVie is 13.4%, which ranks better than 72.04% of companies in the Drug Manufacturers industry. The 3-year average EBITDA growth rate is 18.2%, which ranks better than 65.91% of global competitors.
ROIC vs WACC: A Profitability Perspective
Another way to assess a company's profitability is to compare its return on invested capital (ROIC) and the weighted cost of capital (WACC). ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. Ideally, the ROIC should be higher than the WACC. For the past 12 months, AbbVie's ROIC is 11.87, and its WACC is 6.35.
Conclusion
In summary, AbbVie's stock appears to be modestly overvalued. The company's financial condition is poor, but its profitability is strong. Its growth ranks better than 65.91% of companies in the Drug Manufacturers industry. For more information about AbbVie stock, you can check out its 30-Year Financials here.
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