2 Reasons to Watch ABBV and 1 to Stay Cautious

AbbVie currently trades at $207.60 per share and has shown little upside over the past six months, posting a small loss of 0.7%. The stock also fell short of the S&P 500’s 9.2% gain during that period.

Is now the 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 $58.33 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 36.6% over the last five years.

One Reason to be Careful:

Weak Constant Currency Growth Points to Soft Demand

We can better understand Therapeutics companies by analyzing their constant currency revenue. This metric excludes currency movements, which are outside of AbbVie’s control and are not indicative of underlying demand.

Over the last two years, AbbVie’s constant currency revenue averaged 4.4% year-on-year growth. This performance slightly lagged the sector and suggests it might have to lower prices or invest in product improvements to accelerate growth, factors that can hinder near-term profitability.

Final Judgment

AbbVie has huge potential even though it has some open questions. With its shares lagging the market recently, the stock trades at 15.8× forward P/E (or $207.60 per share). Is now the right time to buy? See for yourself in our in-depth research report, it’s free.

Stocks We Like Even More Than AbbVie

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