Most pharmaceutical companies are naturally slow moving due to the long time it takes to develop a new drug AbVie (NYSE: ABBV) is no exception. Nevertheless, the economy is likely to grow faster in the next five years than in the past five years, and shareholders are likely to benefit.
This is where this company is going and where it will likely end up.
Start your morning smarter! Wake up with Breakfast news in your inbox every market day. Register for free »
Over the next five years, AbbVie is expected to continue to compete in the disease areas where its pipeline and product mix are currently heavily focused: immunology, neuroscience and oncology. It will also likely continue to compete on a much smaller scale in aesthetics, ophthalmic medicine, and a group of other areas such as infectious diseases, but these efforts are minor at best. Given the fourteen early-stage oncology programs currently in clinical trials, cancer drugs will likely be more important to the top line than they have been in the past.
As evidenced by its recent acquisition of Cerevel, which it justified as strengthening its neuroscience portfolio, it wouldn’t be too surprising if AbbVie were to pursue more acquisitions, with an eye on oncology or perhaps immunology. It currently has more than $7.2 billion in cash, equivalents and short-term investments, and in 2023 it reported free cash flow (FCF) of almost $22.1 billion. So it should have enough cash and cash flow to buy a handful of small biotechs outright, or even a few larger ones if it’s willing to lean on a little debt financing.
Currently, management calculates that the company’s revenue will grow at a compound annual growth rate of between 7% and 9% between 2024 and 2029. Driving this growth will be $27 billion in sales from leading immunology medicines Rinvoq and Skyrizi, an aesthetic product. portfolio worth more than $9 billion annually, and a recovering oncology segment that should start growing rather than shrinking within roughly the next two years. A number of other drugs are also expected to reach their peak sales years between now and the end of this decade.
So with this information in hand, based on 2023 annual revenue of $54.3 billion, we can estimate that AbbVie’s 2029 revenue should be worth at least $75.4 billion, and a maximum of roughly $83.1 billion.
As the company grows over the next five years, shareholders can expect AbbVie to continue increasing the dividend as this is one of management’s priorities for capital allocation. But investors should temper their expectations about the pace of dividend growth. Over the past decade, the company has increased its payments by 235%. However, the pace of increases has slowed and for 2024 the payout was increased by only 5%.
That could rise slightly as the payout ratio falls to a more sustainable level than it is now, where dividend liabilities are substantially greater than trailing-twelve-month net profit of $5.1 billion.
The biggest risk AbbVie faces over the next five years is that it will make research and development investments in its early-stage pipeline that are poorly aligned with the largest disease markets of the future. There is no sign of this happening. Still, there’s always the risk that its programs will fail in clinical trials, although the extent to which failures could hurt the stock price seems quite limited given the size of its pipeline.
Overall, chances are that this pharmaceutical company will be more resourced and significantly larger before the end of 2029. It is also likely to have made some progress in reducing its long-term debt burden of $58.5 billion. Therefore, it’s safe to say that the investment thesis in favor of buying stocks is alive and well, even for investors with more conservative risk tolerances.
Consider the following before buying shares in AbbVie:
The Motley Fool stock advisor The analyst team has just identified what they think is the 10 best stocks for investors to buy now… and AbbVie wasn’t one of them. The ten stocks that survived the cut could deliver monster returns in the coming years.
Think about when Nvidia made this list on April 15, 2005… if you had $1,000 invested at the time of our recommendation, you would have $858,854!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including portfolio building guidance, regular analyst updates, and two new stock picks per month. The Stock Advisor is on duty more than quadrupled the return of the S&P 500 since 2002*.
View the 10 stocks »
*Stock Advisor returns November 18, 2024
Alex Carchidi has no position in any of the stocks mentioned. The Motley Fool holds and recommends positions in AbbVie. The Motley Fool has a disclosure policy.
Where will AbbVie be in five years? was originally published by The Motley Fool
