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Jim Cramer's Action Alerts PLUS

Action Alerts PLUS

Humira Propels AbbVie's Strong Results

BY Jim Cramer and Stephanie Link | 10/31/14 - 11:15 AM EDT
Stocks in Focus: ABBV

AbbVie (ABBV:Nasdaq) reported very strong third-quarter results reflecting better revenues led by its flagship drug, Humira. Total revenues rose 8.3%, year to year, to $5.02 billion, and were up 14% excluding its lipid franchise -- which lost exclusivity. The company also raised guidance for the full year.

The shares are up just about 3% today, as this is textbook on how to report a beat-and-raise quarter. Importantly, the higher guidance does not include the upcoming launch of its hepatitus C drug (the PDUFA date is Dec. 22), so we believe the set-up into 2015 is very good. Management reiterated that it expects to get approval of its HCV drug this year.

At just 13x forward estimates, the stock trades at a 15% discount to the group and we continue to like this story. We’re not going to chase the stock up today, but on any pullback ABBV is still a buy even after the recent rally it’s had. If it were to trade in line with the group we could see $68-$70. Coupled with the 3.2% dividend yield (the second highest in the sector) and the Hep C catalyst, the total return remains attractive.

Third-quarter earnings were $0.89, vs. the $0.77 consensus. All products came in ahead of plan, but it was Humira (60% of total revenues) that continued to impress, improving 18%, year to year, to $3.2 billion, ahead of the 17% year-to-year growth expected by analysts. Wholesaler inventory was flat, quarter to quarter. At the retail channel, the company did see some second-quarter buying ahead of the price increase, so the third quarter could have actually been stronger. The company also posted strong growth in other products: Kaletra, Synthroid, Creon, Synagis, and Duodopa.

Gross margins, which rose 140 basis points, year over year, were also ahead of plan, as costs (SG&A and R&D) came in less than expected. AbbVie was able to deliver the high-quality earnings even as it increased R&D by 14.4%. This is also a positive, in our view, as the company continues to spend on the buildout of its mid-later stage pipeline. Guidance for 2014 was raised by $0.15, at the midpoint to $3.25-$3.27, and does not include any HCV sales.

On the call, AbbVie said that it believes the Hep C market is bigger than it thought (over $20 billion) and that it feels good about its ability to compete and gain share. Management said it is comfortable with labeling and we expect competitive pricing to Gilead’s (GILD) Harvoni at $85,000-$90,000. We continue to believe this is a $4 billion peak sales opportunity for AbbVie, which now may have upside after listening to the management team.

Regards,

Jim Cramer, Stephanie Link, and TheStreet Research Team

DISCLOSURE: At the time of publication, Action Alerts PLUS was long ABBV.

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Action Alerts PLUS Holdings

Stocks we would buy right now

Symbol % Portfolio
Weighting
Industry
ABBV 2.13% Drugs
AIG 3.01% Insurance
AXP 5.38% Financial Services
CMI 0.55% Industrial
DOW 4.71% Chemicals
ESV 3.07% Energy
ETN 4.86% Industrial
KMI 2.89% Energy
LEA 4.50% Automotive
M 3.46% Retail
MCD 1.75% Leisure
MSFT 2.81% Computer Software & Services
PNRA 3.02% Leisure
PVH 2.57% Consumer Non-Durables
RDS.A 4.16% Energy
SBUX 3.82% Leisure
STI 3.66% Banking
TWTR 2.17% Internet
WAG 3.48% Retail

Stocks we would buy on a pullback

Symbol % Portfolio
Weighting
Industry
AAPL 3.31% Consumer Durables
FB 3.92% Internet
GM 3.98% Automotive
GOOGL 4.99% Internet
GS 3.02% Financial Services
JNJ 2.50% Drugs
UTX 5.10% Aerospace/Defense

Stocks we would sell on strength

Symbol % Portfolio
Weighting
Industry
BAC 4.17% Banking
VALE 1.36% Metals & Mining

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