Intrinsic value of AbbVie - ABBV

Previous Close

$70.42

  Intrinsic Value

$70.36

stock screener

  Rating & Target

hold

-0%

  Value-price divergence*

-65%

Previous close

$70.42

 
Intrinsic value

$70.36

 
Up/down potential

-0%

 
Rating

hold

 
Value-price divergence*

-65%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of ABBV stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 111.6

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  12.16
  9.70
  9.23
  8.81
  8.43
  8.08
  7.78
  7.50
  7.25
  7.02
  6.82
  6.64
  6.47
  6.33
  6.19
  6.08
  5.97
  5.87
  5.78
  5.71
  5.63
  5.57
  5.51
  5.46
  5.42
  5.37
  5.34
  5.30
  5.27
  5.25
  5.22
Revenue, $m
  25,638
  28,125
  30,721
  33,426
  36,243
  39,173
  42,219
  45,384
  48,673
  52,092
  55,645
  59,339
  63,181
  67,179
  71,341
  75,675
  80,191
  84,899
  89,809
  94,933
  100,282
  105,870
  111,708
  117,810
  124,191
  130,866
  137,851
  145,162
  152,817
  160,834
  169,232
Variable operating expenses, $m
 
  9,272
  9,986
  10,730
  11,504
  12,309
  13,146
  14,016
  14,920
  15,860
  16,837
  16,311
  17,367
  18,466
  19,609
  20,801
  22,042
  23,336
  24,686
  26,094
  27,565
  29,100
  30,705
  32,382
  34,136
  35,971
  37,891
  39,901
  42,005
  44,209
  46,517
Fixed operating expenses, $m
 
  8,043
  8,244
  8,450
  8,662
  8,878
  9,100
  9,328
  9,561
  9,800
  10,045
  10,296
  10,553
  10,817
  11,088
  11,365
  11,649
  11,940
  12,239
  12,545
  12,858
  13,180
  13,509
  13,847
  14,193
  14,548
  14,912
  15,284
  15,666
  16,058
  16,460
Total operating expenses, $m
  16,254
  17,315
  18,230
  19,180
  20,166
  21,187
  22,246
  23,344
  24,481
  25,660
  26,882
  26,607
  27,920
  29,283
  30,697
  32,166
  33,691
  35,276
  36,925
  38,639
  40,423
  42,280
  44,214
  46,229
  48,329
  50,519
  52,803
  55,185
  57,671
  60,267
  62,977
Operating income, $m
  9,384
  10,809
  12,491
  14,247
  16,078
  17,986
  19,972
  22,040
  24,192
  26,432
  28,763
  32,733
  35,261
  37,896
  40,644
  43,509
  46,500
  49,622
  52,885
  56,294
  59,860
  63,589
  67,493
  71,581
  75,862
  80,347
  85,048
  89,977
  95,146
  100,567
  106,255
EBITDA, $m
  10,573
  13,334
  15,107
  16,957
  18,887
  20,897
  22,990
  25,169
  27,436
  29,795
  32,251
  34,808
  37,471
  40,245
  43,138
  46,155
  49,304
  52,591
  56,025
  59,614
  63,366
  67,291
  71,399
  75,700
  80,204
  84,923
  89,869
  95,053
  100,489
  106,191
  112,173
Interest expense (income), $m
  986
  1,289
  1,422
  1,632
  1,852
  2,081
  2,319
  2,566
  2,823
  3,090
  3,367
  3,656
  3,956
  4,268
  4,592
  4,930
  5,282
  5,649
  6,031
  6,429
  6,845
  7,280
  7,733
  8,207
  8,703
  9,221
  9,763
  10,330
  10,923
  11,545
  12,196
Earnings before tax, $m
  7,884
  9,520
  11,069
  12,614
  14,226
  15,905
  17,654
  19,474
  21,369
  23,342
  25,396
  29,077
  31,306
  33,629
  36,051
  38,579
  41,218
  43,974
  46,854
  49,865
  53,014
  56,310
  59,760
  63,373
  67,159
  71,126
  75,286
  79,647
  84,222
  89,022
  94,060
Tax expense, $m
  1,931
  2,570
  2,989
  3,406
  3,841
  4,294
  4,766
  5,258
  5,770
  6,302
  6,857
  7,851
  8,452
  9,080
  9,734
  10,416
  11,129
  11,873
  12,651
  13,463
  14,314
  15,204
  16,135
  17,111
  18,133
  19,204
  20,327
  21,505
  22,740
  24,036
  25,396
Net income, $m
  5,953
  6,950
  8,080
  9,208
  10,385
  11,611
  12,887
  14,216
  15,600
  17,040
  18,539
  21,226
  22,853
  24,549
  26,317
  28,163
  30,089
  32,101
  34,203
  36,401
  38,700
  41,106
  43,625
  46,262
  49,026
  51,922
  54,959
  58,143
  61,482
  64,986
  68,664

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  6,423
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  66,099
  72,487
  79,177
  86,151
  93,410
  100,961
  108,811
  116,969
  125,447
  134,257
  143,415
  152,936
  162,838
  173,142
  183,868
  195,038
  206,677
  218,811
  231,467
  244,673
  258,460
  272,860
  287,906
  303,634
  320,080
  337,284
  355,287
  374,130
  393,859
  414,520
  436,164
Adjusted assets (=assets-cash), $m
  59,676
  72,487
  79,177
  86,151
  93,410
  100,961
  108,811
  116,969
  125,447
  134,257
  143,415
  152,936
  162,838
  173,142
  183,868
  195,038
  206,677
  218,811
  231,467
  244,673
  258,460
  272,860
  287,906
  303,634
  320,080
  337,284
  355,287
  374,130
  393,859
  414,520
  436,164
Revenue / Adjusted assets
  0.430
  0.388
  0.388
  0.388
  0.388
  0.388
  0.388
  0.388
  0.388
  0.388
  0.388
  0.388
  0.388
  0.388
  0.388
  0.388
  0.388
  0.388
  0.388
  0.388
  0.388
  0.388
  0.388
  0.388
  0.388
  0.388
  0.388
  0.388
  0.388
  0.388
  0.388
Average production assets, $m
  26,888
  29,503
  32,226
  35,064
  38,019
  41,092
  44,287
  47,608
  51,058
  54,644
  58,372
  62,247
  66,277
  70,471
  74,836
  79,383
  84,120
  89,059
  94,210
  99,585
  105,196
  111,057
  117,181
  123,583
  130,277
  137,279
  144,606
  152,275
  160,305
  168,715
  177,524
Working capital, $m
  6,406
  422
  461
  501
  544
  588
  633
  681
  730
  781
  835
  890
  948
  1,008
  1,070
  1,135
  1,203
  1,273
  1,347
  1,424
  1,504
  1,588
  1,676
  1,767
  1,863
  1,963
  2,068
  2,177
  2,292
  2,413
  2,538
Total debt, $m
  36,842
  40,617
  46,639
  52,914
  59,448
  66,244
  73,309
  80,651
  88,281
  96,211
  104,452
  113,021
  121,934
  131,207
  140,860
  150,913
  161,388
  172,309
  183,699
  195,585
  207,993
  220,953
  234,494
  248,649
  263,451
  278,935
  295,137
  312,096
  329,852
  348,447
  367,927
Total liabilities, $m
  61,463
  65,238
  71,260
  77,535
  84,069
  90,865
  97,930
  105,272
  112,902
  120,832
  129,073
  137,642
  146,555
  155,828
  165,481
  175,534
  186,009
  196,930
  208,320
  220,206
  232,614
  245,574
  259,115
  273,270
  288,072
  303,556
  319,758
  336,717
  354,473
  373,068
  392,548
Total equity, $m
  4,636
  7,249
  7,918
  8,615
  9,341
  10,096
  10,881
  11,697
  12,545
  13,426
  14,341
  15,294
  16,284
  17,314
  18,387
  19,504
  20,668
  21,881
  23,147
  24,467
  25,846
  27,286
  28,791
  30,363
  32,008
  33,728
  35,529
  37,413
  39,386
  41,452
  43,616
Total liabilities and equity, $m
  66,099
  72,487
  79,178
  86,150
  93,410
  100,961
  108,811
  116,969
  125,447
  134,258
  143,414
  152,936
  162,839
  173,142
  183,868
  195,038
  206,677
  218,811
  231,467
  244,673
  258,460
  272,860
  287,906
  303,633
  320,080
  337,284
  355,287
  374,130
  393,859
  414,520
  436,164
Debt-to-equity ratio
  7.947
  5.600
  5.890
  6.140
  6.360
  6.560
  6.740
  6.900
  7.040
  7.170
  7.280
  7.390
  7.490
  7.580
  7.660
  7.740
  7.810
  7.870
  7.940
  7.990
  8.050
  8.100
  8.140
  8.190
  8.230
  8.270
  8.310
  8.340
  8.370
  8.410
  8.440
Adjusted equity ratio
  -0.024
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  5,953
  6,950
  8,080
  9,208
  10,385
  11,611
  12,887
  14,216
  15,600
  17,040
  18,539
  21,226
  22,853
  24,549
  26,317
  28,163
  30,089
  32,101
  34,203
  36,401
  38,700
  41,106
  43,625
  46,262
  49,026
  51,922
  54,959
  58,143
  61,482
  64,986
  68,664
Depreciation, amort., depletion, $m
  1,189
  2,525
  2,616
  2,710
  2,809
  2,911
  3,018
  3,129
  3,244
  3,363
  3,487
  2,075
  2,209
  2,349
  2,495
  2,646
  2,804
  2,969
  3,140
  3,319
  3,507
  3,702
  3,906
  4,119
  4,343
  4,576
  4,820
  5,076
  5,344
  5,624
  5,917
Funds from operations, $m
  5,352
  9,475
  10,696
  11,919
  13,194
  14,522
  15,905
  17,345
  18,843
  20,403
  22,026
  23,301
  25,062
  26,898
  28,812
  30,809
  32,893
  35,069
  37,344
  39,721
  42,207
  44,808
  47,531
  50,382
  53,369
  56,498
  59,779
  63,218
  66,826
  70,610
  74,581
Change in working capital, $m
  -1,689
  37
  39
  41
  42
  44
  46
  47
  49
  51
  53
  55
  58
  60
  62
  65
  68
  71
  74
  77
  80
  84
  88
  92
  96
  100
  105
  110
  115
  120
  126
Cash from operations, $m
  7,041
  9,437
  10,657
  11,878
  13,151
  14,478
  15,859
  17,297
  18,794
  20,352
  21,973
  23,246
  25,005
  26,838
  28,750
  30,744
  32,825
  34,999
  37,270
  39,644
  42,127
  44,724
  47,443
  50,290
  53,273
  56,398
  59,674
  63,109
  66,711
  70,490
  74,455
Maintenance CAPEX, $m
  0
  -896
  -983
  -1,074
  -1,169
  -1,267
  -1,370
  -1,476
  -1,587
  -1,702
  -1,821
  -1,946
  -2,075
  -2,209
  -2,349
  -2,495
  -2,646
  -2,804
  -2,969
  -3,140
  -3,319
  -3,507
  -3,702
  -3,906
  -4,119
  -4,343
  -4,576
  -4,820
  -5,076
  -5,344
  -5,624
New CAPEX, $m
  -479
  -2,616
  -2,723
  -2,838
  -2,955
  -3,073
  -3,195
  -3,321
  -3,451
  -3,586
  -3,727
  -3,875
  -4,030
  -4,194
  -4,365
  -4,546
  -4,737
  -4,939
  -5,151
  -5,375
  -5,612
  -5,861
  -6,124
  -6,401
  -6,694
  -7,002
  -7,327
  -7,669
  -8,030
  -8,410
  -8,809
Cash from investing activities, $m
  -6,074
  -3,512
  -3,706
  -3,912
  -4,124
  -4,340
  -4,565
  -4,797
  -5,038
  -5,288
  -5,548
  -5,821
  -6,105
  -6,403
  -6,714
  -7,041
  -7,383
  -7,743
  -8,120
  -8,515
  -8,931
  -9,368
  -9,826
  -10,307
  -10,813
  -11,345
  -11,903
  -12,489
  -13,106
  -13,754
  -14,433
Free cash flow, $m
  967
  5,926
  6,951
  7,966
  9,028
  10,137
  11,295
  12,500
  13,756
  15,064
  16,424
  17,425
  18,899
  20,435
  22,035
  23,703
  25,442
  27,256
  29,150
  31,128
  33,196
  35,357
  37,617
  39,983
  42,459
  45,053
  47,771
  50,619
  53,605
  56,737
  60,022
Issuance/(repayment) of debt, $m
  5,588
  3,775
  6,021
  6,276
  6,533
  6,796
  7,065
  7,343
  7,630
  7,929
  8,242
  8,569
  8,912
  9,273
  9,653
  10,053
  10,475
  10,920
  11,390
  11,886
  12,408
  12,960
  13,542
  14,155
  14,802
  15,484
  16,202
  16,959
  17,756
  18,596
  19,479
Issuance/(repurchase) of shares, $m
  -5,765
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -211
  3,775
  6,021
  6,276
  6,533
  6,796
  7,065
  7,343
  7,630
  7,929
  8,242
  8,569
  8,912
  9,273
  9,653
  10,053
  10,475
  10,920
  11,390
  11,886
  12,408
  12,960
  13,542
  14,155
  14,802
  15,484
  16,202
  16,959
  17,756
  18,596
  19,479
Total cash flow (excl. dividends), $m
  418
  9,701
  12,972
  14,242
  15,561
  16,933
  18,360
  19,843
  21,386
  22,993
  24,666
  25,994
  27,812
  29,708
  31,688
  33,756
  35,917
  38,177
  40,540
  43,014
  45,604
  48,317
  51,159
  54,138
  57,261
  60,537
  63,973
  67,578
  71,361
  75,332
  79,501
Retained Cash Flow (-), $m
  -691
  -2,613
  -669
  -697
  -726
  -755
  -785
  -816
  -848
  -881
  -916
  -952
  -990
  -1,030
  -1,073
  -1,117
  -1,164
  -1,213
  -1,266
  -1,321
  -1,379
  -1,440
  -1,505
  -1,573
  -1,645
  -1,720
  -1,800
  -1,884
  -1,973
  -2,066
  -2,164
Prev. year cash balance distribution, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  7,088
  12,303
  13,544
  14,835
  16,178
  17,575
  19,027
  20,539
  22,112
  23,750
  25,041
  26,821
  28,678
  30,616
  32,639
  34,753
  36,963
  39,275
  41,693
  44,225
  46,877
  49,654
  52,565
  55,617
  58,816
  62,173
  65,694
  69,388
  73,266
  77,337
Discount rate, %
 
  9.30
  9.77
  10.25
  10.77
  11.30
  11.87
  12.46
  13.09
  13.74
  14.43
  15.15
  15.91
  16.70
  17.54
  18.41
  19.33
  20.30
  21.32
  22.38
  23.50
  24.68
  25.91
  27.20
  28.57
  29.99
  31.49
  33.07
  34.72
  36.46
  38.28
PV of cash for distribution, $m
 
  6,485
  10,212
  10,106
  9,855
  9,470
  8,966
  8,362
  7,679
  6,941
  6,171
  5,307
  4,562
  3,851
  3,188
  2,587
  2,055
  1,597
  1,212
  898
  649
  457
  312
  208
  134
  83
  50
  29
  16
  9
  5
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

AbbVie Inc. discovers, develops, manufactures, and sells pharmaceutical products worldwide. The company offers HUMIRA, a biologic therapy administered as a subcutaneous injection to treat autoimmune diseases; IMBRUVICA, an oral therapy for the treatment of patients with chronic lymphocytic leukemia; and VIEKIRA PAK, an interferon-free therapy, with or without ribavirin, for the treatment of adults with genotype 1 chronic hepatitis C. It also provides Kaletra, an anti- human immunodeficiency virus(HIV)-1 medicine used with other anti-HIV-1 medications as a treatment that maintains viral suppression in HIV-1 patients; Norvir, a protease inhibitor indicated in combination with other antiretroviral agents to treat HIV-1; and Synagis to prevent RSV infection at-risk infants. In addition, the company offers AndroGel, a testosterone replacement therapy for males diagnosed with symptomatic low testosterone; Creon, a pancreatic enzyme therapy for exocrine pancreatic insufficiency; Synthroid to treat hypothyroidism; and Lupron, a product for the palliative treatment of prostate cancer, endometriosis, and central precocious puberty, as well as for the treatment of patients with anemia. Further, it provides Duopa and Duodopa, a levodopa-carbidopa intestinal gel to treat Parkinson’s disease; Sevoflurane, an anesthesia product for human use; and ZINBRYTA, a subcutaneous treatment for relapsing forms of multiple sclerosis. The company sells its products to wholesalers, distributors, government agencies, health care facilities, specialty pharmacies, and independent retailers from its distribution centers and public warehouses. AbbVie Inc. has collaboration agreements with C2N Diagnostics; Calico Life Sciences LLC; and Infinity Pharmaceuticals, Inc. The company was incorporated in 2012 and is based in North Chicago, Illinois.

FINANCIAL RATIOS  of  AbbVie (ABBV)

Valuation Ratios
P/E Ratio 18.8
Price to Sales 4.4
Price to Book 24.2
Price to Tangible Book
Price to Cash Flow 15.9
Price to Free Cash Flow 17.1
Growth Rates
Sales Growth Rate 12.2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -10%
Cap. Spend. - 3 Yr. Gr. Rate -0.5%
Financial Strength
Quick Ratio 16
Current Ratio 0
LT Debt to Equity 786%
Total Debt to Equity 794.7%
Interest Coverage 9
Management Effectiveness
Return On Assets 11.2%
Ret/ On Assets - 3 Yr. Avg. 10.8%
Return On Total Capital 15.4%
Ret/ On T. Cap. - 3 Yr. Avg. 15%
Return On Equity 138.7%
Return On Equity - 3 Yr. Avg. 125.5%
Asset Turnover 0.4
Profitability Ratios
Gross Margin 77.3%
Gross Margin - 3 Yr. Avg. 78.5%
EBITDA Margin 39.2%
EBITDA Margin - 3 Yr. Avg. 30.7%
Operating Margin 36.6%
Oper. Margin - 3 Yr. Avg. 28.9%
Pre-Tax Margin 30.8%
Pre-Tax Margin - 3 Yr. Avg. 23.9%
Net Profit Margin 23.2%
Net Profit Margin - 3 Yr. Avg. 18.2%
Effective Tax Rate 24.5%
Eff/ Tax Rate - 3 Yr. Avg. 24.1%
Payout Ratio 62.4%

ABBV stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ABBV stock intrinsic value calculation we used $25638 million for the last fiscal year's total revenue generated by AbbVie. The default revenue input number comes from 2016 income statement of AbbVie. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our ABBV stock valuation model: a) initial revenue growth rate of 9.7% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 9.3%, whose default value for ABBV is calculated based on our internal credit rating of AbbVie, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of AbbVie.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of ABBV stock the variable cost ratio is equal to 33.5%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $7847 million in the base year in the intrinsic value calculation for ABBV stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.5% for AbbVie.

Corporate tax rate of 27% is the nominal tax rate for AbbVie. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the ABBV stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for ABBV are equal to 104.9%.

Life of production assets of 34.6 years is the average useful life of capital assets used in AbbVie operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for ABBV is equal to 1.5%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $4636 million for AbbVie - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 1584.12 million for AbbVie is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of AbbVie at the current share price and the inputted number of shares is $111.6 billion.

Management's discussion and analysis

AbbVie is a global, research-based biopharmaceutical company formed in 2013 following separation from Abbott Laboratories (Abbott). AbbVie's mission is to use its expertise, dedicated people and unique approach to innovation to develop and market advanced therapies that address some of the world's most complex and serious diseases. AbbVie's products are focused on treating conditions such as chronic autoimmune diseases in rheumatology, gastroenterology and dermatology; oncology, including blood cancers; virology, including hepatitis C (HCV) and human immunodeficiency virus (HIV); neurological disorders, such as Parkinson's disease and multiple sclerosis; metabolic diseases, including thyroid disease and complications associated with cystic fibrosis; as well as other serious health conditions. AbbVie also has a pipeline of promising new medicines across such important medical specialties as immunology, virology, oncology and neurology, with additional targeted investment in cystic fibrosis and women's health.
AbbVie's products are generally sold worldwide directly to wholesalers, distributors, government agencies, health care facilities, specialty pharmacies and independent retailers from AbbVie-owned distribution centers and public warehouses. In the United States, AbbVie distributes pharmaceutical products principally through independent wholesale distributors, with some sales directly to pharmacies and patients. Outside the United States, sales are made either directly to customers or through distributors, depending on the market served. Certain products are co-marketed or co-promoted with other companies. AbbVie has approximately 30,000 employees. AbbVie operates in one business segment—pharmaceutical products.

2016 Financial Results

AbbVie's strategy has focused on delivering strong financial results, advancing and investing in its pipeline and returning value to shareholders while ensuring a strong, sustainable growth business over the long term. In 2016, AbbVie's worldwide net revenues grew by 12% to $25.6 billion, driven primarily by the continued strength of HUMIRA, post-acquisition revenue growth related to IMBRUVICA and revenue growth in other key products including Creon and Duodopa. These increases were partially offset by a decline in net revenues of Kaletra and VIEKIRA.
The company's financial performance in 2016 included delivering diluted earnings per share of $3.63. 2016 results included the following after-tax costs: (i) $615 million related to the amortization of intangible assets; (ii) a $298 million currency devaluation loss related to Venezuela; (iii) $273 million related to the acquisition of Stemcentrx and Boehringer Ingelheim (BI) compounds; (iv) $228 million for changes in contingent consideration; (v) $200 million for acquired in-process research and development (IPR&D); (vi) $187 million associated with a tax law change for regulations issued in the fourth quarter of 2016 that revised the treatment of foreign currency translation gains and losses for certain operations; and (vii) milestone payments of $80 million. Additionally, 2016 financial results reflected added funding to support AbbVie’s emerging mid- and late-stage pipeline assets and continued investment in AbbVie’s growth brands.
In 2016, the company generated cash flows from operations of $7.0 billion, which AbbVie utilized to continue to enhance its pipeline through licensing and collaboration activities, pay cash dividends to stockholders of $3.7 billion and repurchase approximately 34 million shares for $2.1 billion in the open market (excluding the shares repurchased under an accelerated repurchase agreement). In October 2016, AbbVie's board of directors declared a quarterly cash dividend of $0.64 per share of common stock payable in February 2017. This reflects an increase of approximately 12% over the previous quarterly rate of $0.57 per share of common stock.
In April 2016, AbbVie acquired all rights to risankizumab (BI 655066), an anti-IL-23 monoclonal biologic antibody, from BI pursuant to a global collaboration agreement. In June 2016, AbbVie acquired Stemcentrx, a privately held biotechnology company. The transaction expands AbbVie’s oncology pipeline by adding the late-stage asset rovalpituzumab tesirine (Rova-T), four additional early-stage clinical compounds in solid tumor indications and a significant portfolio of pre-clinical assets. Rova-T is currently in registrational trials for small cell lung cancer and in early-stage clinical development for other solid tumors. In connection with the Stemcentrx acquisition, AbbVie’s board of directors authorized a $4.0 billion increase to 
AbbVie’s existing share repurchase program. Promptly following the closing of the Stemcentrx transaction, AbbVie entered into and executed a $3.8 billion accelerated share repurchase agreement (ASR) with a third party financial institution to reacquire nearly all of the newly-issued equity. In May 2016, AbbVie issued $7.8 billion aggregate principal amount of unsecured senior notes. Of the $7.7 billion net proceeds, $2.0 billion was used to repay the company’s outstanding term loan that was due to mature in November 2016, approximately $1.9 billion was used to finance the acquisition of Stemcentrx and approximately $3.8 billion was used to finance the ASR. In November 2016, the company issued €3.6 billion aggregate principal amount of unsecured senior Euro notes and repaid the company’s outstanding 1.75% senior notes that were due to mature in November 2017. See Note 5 to the Consolidated Financial Statements for additional information related to the acquisition of Stemcentrx and BI compounds, Note 9 for additional information related to the senior Euro notes and Note 12 for additional information related to the ASR.
2017 Strategic Objectives
AbbVie's mission is to be an innovation-driven, patient-focused specialty biopharmaceutical company capable of achieving top-tier financial performance through outstanding execution and a consistent stream of innovative new medicines. AbbVie intends to continue to advance its mission in a number of ways, including: (i) growing revenues through continued strong performance from its existing portfolio of on-market products, including its flagship brands, HUMIRA and IMBRUVICA as well as growth from pipeline products; (ii) expanding operating margins; (iii) continued investment in its pipeline in support of opportunities in immunology, oncology, virology and neurology as well as continued investment in key on-market products; (iv) augmentation of its pipeline through concerted focus on strategic licensing, acquisition and partnering activity with a focus on identifying compelling programs that fit AbbVie's strategic criteria; and (v) returning cash to shareholders via dividends and share repurchases. In addition, AbbVie anticipates several regulatory submissions and key data readouts from key clinical trials in the next twelve months.
AbbVie expects to achieve its strategic objectives as follows:
   
HUMIRA sales growth by driving biologic penetration across disease categories, increasing market leadership and strong commercial execution.
   
IMBRUVICA revenue growth driven by increasing market share within its five currently approved indications.
   
The favorable impact of pipeline products approved in 2016 or currently under regulatory review where approval is expected in 2017. These products are described in greater detail in the section labeled "Research and Development" included as part of this Item 7.
AbbVie remains committed to driving continued expansion of operating margins and expects to achieve this objective through productivity initiatives in supply chain, ongoing efficiency programs to optimize manufacturing, commercial infrastructure, administrative costs and general corporate expenses and continued leverage from revenue growth. AbbVie also remains committed to returning cash to shareholders via dividends and share repurchases.

[Source: Form 10-K dated 2017-02-17]

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Stock chart of ABBV Financial statements of ABBV
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