A detailed quantitative analysis by Abbvie Inc. (ABBV) is linked here. Below are some highlights from the analysis linked above:
Company description: Abbvie Inc. is a global research-based pharmaceutical company that was formed as an independent entity following its spin-off from Abbott Laboratories in early 2013. AbbVie’s main drug is Humira for rheumatoid arthritis.
Fair value: When calculating the fair value, I take into account the NPV MMA Differential Fair Value together with these four calculations of the fair value, a detailed description can be found on page 2 of the linked PDF:
1. Avg. High yield price
2. 20-year DCF award
3. Avg. P / E price
4. Graham number
ABBV trades at a premium to all four of the above ratings. Since the physical book value of ABBV is not meaningful, a Graham number cannot be calculated. With the NPV-MMA differential also factored in, the stock trades at a discount of 73.1% to its calculated fair value of $ 418.27. ABBV received a star on this section because it trades at fair value.
Analytical data on dividends: There are three possible stars and three key metrics in this section, a detailed description can be found on page 2 of the linked PDF:
1. Free cash flow payout
2. Debt to total capital
3. Key metrics
4. Dividend Growth Rate
5th years Div. growth
6. Rolling 4-year div. > 15%
In this section, ABBV has received two stars for 1.) and 3.) above. A star was earned because the free cash flow payout ratio was less than 60% and there were no negative free cash flows in the last 10 years. ABBV received one star for an acceptable score in at least two of the four key metrics measured. Rolling 4-year div. > 15% means that over the past 10 years (2011-2014, 2012-2015, 2013-2016 etc.) dividends have increased by an average of more than 15% in each consecutive 4-year period, doubling every 5 years if they grow by 15%. The company has paid a cash dividend to shareholders every year since 1926 and has increased its dividend payments for 49 consecutive years.
Dividend Income vs. MMA: Why take the equity risk and invest in a dividend stock when you could get a better return with a much lower risk money market account (MMA) or a government bond? This section compares the earning power of this stock to a High yield MMA. In this section two points are considered, a detailed description can be found on page 2 of the linked PDF:
1. NPV MMA Diff.
2. Years to> MMA
ABBV has received an asterisk in this section for its NPV MMA Diff. from $ 31,542. That amount is above the $ 500 target I’m looking for in a stock that has been raising dividends for as long as ABBV. The stock’s current yield of 4.52% exceeds the estimated 20-year average MMA rate of 2.74%.
Peers: The company’s peer group includes: Merck & Co. Inc. (MRK) with 3.5% return, Bristol-Myers Squibb Company (BMY) with a yield of 3.0% and Eli Lilly & Co. (LLY) with a yield of 1.5%.
Conclusion: ABBV received one star in the Fair Value category, two stars in the Dividend Analytical Data category and one star in the Dividend Income vs. MMA category, for a total of four stars. ABBV is thus quantitatively referred to as a 4-star strong Warehouse.
Using my D4L-PreScreen.xls Model I found that the stock price must rise to $ 531.38 before ABBV’s NPV MMA differential drops to the minimum of $ 500 that I’m looking for on a stock with 49 years of consecutive dividend increases (streak includes increases from previous companies). At that price, the stock would return 1.0%.
Resetting the D4L-PreScreen.xls The model and solution for the dividend growth rate required to achieve the target NPV MMA differential of $ 500, the calculated rate is -0.1%. This dividend growth rate is below the 15.0% used in this analysis, offering a great margin of safety. ABBV has one Risk rating of 1.75, which rates it as a medium risk stock.
Like all pharmaceutical companies, ABBV faces competition from generics, price restrictions and R&D related risks. Humira, ABBV’s main drug, is facing shrinking market shares following the introduction of biosimilars in Europe. The stock’s 51% free cash flow payout (up from 50%) is in my acceptable range, while its debt to total capital of 86% (up from 112%) is well above my desired maximum. ABBV is currently trading below my calculated fair value of $ 418.27. I plan to continue monitoring the company’s dividend fundamentals and allocation before adding to my position.
Disclaimer: The material presented here is for informational purposes only. The above quantitative stock analysis, including the star rating, is mechanically calculated and based on historical information. The analysis assumes that the share will develop in the future as it has in the past. This is generally never true. Before buying or selling stocks you you should do your own research and come to your own conclusions. Please see my disclaimer for more information.
Full disclosure: At the time of this writing, I was long on ABBV (7.4% of my dividend growth portfolio). See a list of all of them my dividend growth portfolios Here.
On the subject of matching items:
– Hasbro, Inc. (HAS) dividend stock analysis