AbbVie (ABBV): Buy, Sell, or Hold Post Q1 Earnings?

While the broader market has struggled with the S&P 500 down 1.8% since December 2024, AbbVie has surged ahead as its stock price has climbed by 6.7% to $188.02 per share. This was partly thanks to its solid quarterly results, and the run-up might have investors contemplating their next move.

Is now the time to buy AbbVie, or should you be careful about including it in your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.

Why Is AbbVie Not Exciting?

We’re happy investors have made money, but we don't have much confidence in AbbVie. Here are three reasons why you should be careful with ABBV and a stock we'd rather own.

1. Weak Constant Currency Growth Points to Soft Demand

Investors interested in Therapeutics companies should track constant currency revenue in addition to reported 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 3% 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.

2. Shrinking Adjusted Operating Margin

Adjusted operating margin is a key measure of profitability. Think of it as net income (the bottom line) excluding the impact of non-recurring expenses, taxes, and interest on debt - metrics less connected to business fundamentals.

Looking at the trend in its profitability, AbbVie’s adjusted operating margin decreased by 9.2 percentage points over the last two years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. Its adjusted operating margin for the trailing 12 months was 41.5%.

3. Free Cash Flow Margin Dropping

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

As you can see below, AbbVie’s margin dropped by 8.6 percentage points over the last five years. If its declines continue, it could signal increasing investment needs and capital intensity. AbbVie’s free cash flow margin for the trailing 12 months was 26.8%.

Final Judgment

AbbVie isn’t a terrible business, but it doesn’t pass our bar. With its shares beating the market recently, the stock trades at 14.7× forward P/E (or $188.02 per share). Beauty is in the eye of the beholder, but we don’t really see a big opportunity at the moment. We're fairly confident there are better investments elsewhere. We’d suggest looking at the most entrenched endpoint security platform on the market.

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