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.
Jim Cramer, Stephanie Link, and TheStreet Research Team
DISCLOSURE: At the time of publication, Action Alerts PLUS
was long ABBV.
We see a buying opportunity when the dust settles.
Record iron ore production failed to translate into sales, while EBITDA missed views.
As is usually the case during earnings season, we didn’t trade too much, wanting stocks to settle from the initial reactions.
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