Jim Cramer's Trust Sells Out of AbbVie: What Wall Street's Saying

NEW YORK (TheStreet) -- Jim Cramer's charitable trust closed out its position in AbbVie (ABBV) on Tuesday, citing concerns for its "expensive" acquisition plans for Pharmacylics (PCYC).

Cramer's trust Action Alerts PLUS sold all 1,100 shares of AbbVie at about $56.18.

Last week, AbbVie announced plans to acquire the leukemia-drug maker for $21 billion. Pharmacylics is the maker of Imbruvica, its flagship product approved to treat two different types of blood cancer.

AbbVie is paying a 13.4% premium over Pharmacyclics' closing price on March 4 -- the day before the deal was announced -- and 39% above its closing price on Feb. 24 -- before it was reported that the Sunnyvale, Calif.-based company could be an acquisition target. Pharmacylics' shareholders will receive $261.25 per share through a choice of cash, stock or a combination of both. The transaction is expected to be completed in mid-2015.

"We recently downgraded AbbVie shares to a 3 to reflect our growing pessimism after the company announced an expensive, $21 billion acquisition of cancer drug-maker Pharmacyclics for half of the rights to the company's blockbuster drug, Imbruvica," Cramer and AAP Research Director Jack Mohr wrote on Tuesday. "Paying $21 billion for Pharmacyclics -- or $20 billion if you back out $1 billion in cash on its books -- values Imbruvica at roughly $40 billion. While we do believe AbbVie needs to diversify beyond Humira (which currently comprises 60% of total revenues), we can't help but wonder if the price tag is justified. With shares substantially outperforming the market today, we figured it was a good opportunity to get out on top."

Here's what Wall Street analysts have said about Abbvie's deal.

March 5
Vamil Divan, Credit Suisse (Outperform; $69 PT)
Takeaways from today's conference call and conversations with many investors and ABBV's management still leave us cautious on the PCYC deal, but stepping back, we do see opportunities for greater-than-appreciated revenue synergies as the deal allows ABBV to expand more broadly into other hematologic indications and beyond. The launch of a new formulation for Humira and/or further business development also provides avenues for additional upside beyond PCYC.

While ABBV's accretion targets in 2017 and beyond appear achievable, we think full appreciation for financial merits of the deal will take time amid the lofty price tag. In light of the stock's 5.6% drop today, we maintain our Outperform rating at these levels on inexpensive valuation, strong near- to mid-term growth profile, and optionality from additional M&A.

 

 

March 5
Andrew Baum, Citigroup (Sell; $48 PT)
AbbVie's disclosure of filing of a new formulation in the U.S./EU is in line with our expectations. We have extensively analysed the commercial impact of a novel reformulation in our initiation report as an obvious Humira defense strategy. Based on published clinical data and patent filings, we believe the novel reformulation likely involves an auto-injector (similar to Amgen's (AMGN) lifecycle management attempts with Neupogen) with lower injection site pain and potential ability to store at room temperature. A needle-free device is a lower probability scenario, given technical challenges. As highlighted earlier today, we view the acquisition as a valid diversification strategy, but the deal terms risk value destruction given the competitive bidding and back-end loaded accretion. Bristol-Myers Squibb (BMY) and Pfizer (PFE) are our preferred names in the U.S., Astrazeneca (AZN), Novartis  (NVS) and Bayer  (BAYRY) in Europe.

March 6
Jeffrey Holdford, Jefferies (Buy; $86 PT)
The PCYC acquisition marks an inflection point for AbbVie. We believe that the company can achieve its peak revenue goal of more than $7 billion for Imbruvica. Our modeling implies EPS accretion of 19c in 2017E to $6.17 and 10% EPS accretion in the mid term. Humira concentration should be dramatically reduced in the mid term, whilst driving additional EPS growth, leading to material multiple expansion and upside for shareholders.

TheStreet Ratings team rates Abbvie as a hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:

"We rate Abbvie (ABBV) a hold. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its revenue growth, notable return on equity and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, weak operating cash flow and generally higher debt management risk."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 10.4%. Since the same quarter one year prior, revenues slightly increased by 6.7%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. Compared to other companies in the Pharmaceuticals industry and the overall market, ABBVIE INC's return on equity significantly exceeds that of both the industry average and the S&P 500.
  • The gross profit margin for Abbvie is currently very high, coming in at 83.16%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of -14.85% is in-line with the industry average.
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Pharmaceuticals industry. The net income has significantly decreased by 171.8% when compared to the same quarter one year ago, falling from $1,128 million to -$810 million.
  • Net operating cash flow has significantly decreased to -$578 million or 146.42% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.

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