AbbVie Earnings: Strong Growth Led by Skyrizi Supports a Fair Value Estimate Increase of About 5%

AbbVie ABBV reported strong second-quarter results ahead of our projections, and we are increasing our fair value estimate to $126 from $120 based on the improving outlook. In particular, the strong gains for immunology drug Skyrizi support an increased long-term outlook for the drug. Skyrizi’s leading efficacy in psoriasis along with strong data in inflammatory bowel disease should support peak annual sales over $15 billion. Beyond Skyrizi, the rest of the business is largely performing well, except for the expected declines for immunology drug Humira (due to biosimilars) and blood cancer drug Imbruvica (due to intensifying branded competition). The strong, broad-based support provides us with increased confidence in the firm’s moat.

While the business is performing well, we still view the stock as slightly overvalued (even with our increased fair value estimate) largely due to our more bearish long-term outlook for Humira. We believe Humira will continue to pressure earnings over the next five years, in contrast to management’s view of Humira sales stabilizing in 2025. With eight biosimilars on the U.S. market as of July, we expect pricing pressure to continue to intensify over the next several years, creating a headwind for the company’s growth prospects. Even with this headwind, we expect growth from the remaining portfolio to offset the Humira biosimilar pressure, resulting in relatively flat growth over the next five years. However, the stock price seems to imply a stronger growth outlook. Potential upside to our valuation could come from the pipeline, but the majority of next-generation drugs remain in phase 1 and 2 with limited visibility on clinical data. Also, we expect AbbVie to increase its acquisition efforts, but we remain skeptical this will create much value given the high competition for deals.