AbbVie (NYSE:ABBV) bounced back solidly from the $65 low in the days following its Allergan (NYSE:AGN) buyout announcement. Markets have a few good reasons to hold ABBV stock. As investors accumulate the stock, chances are good AbbVie will break its yearlong downtrend.
AbbVie won back some investor confidence after re-affirming its commitment to the $4.28-a-share annual dividend. The Allergan purchase will put a hole in its balance sheet. But management is confident that cash flow generation from sales of Humira will pay for Allergan. In fact, Humira sales growth in the next three years will let AbbVie pay down its debt.
AbbVie has a deep portfolio of existing and upcoming products. The Allergan portfolio adds Botox and beauty-related products, all of which generate healthy cash flow. AbbVie will surely find cost synergies that lower operating costs of the combined firms while increasing profitability.
With a dividend yield in the range of 5.8% to over 6%, income investors may be that AbbVie stock bottomed. By collecting dividends and waiting for the AbbVie-Allergan combination to pay off, shareholders should get rewarded over the next few years.
Your Takeaway
AbbVie shares have tremendous value and an upside of over 20% but only if management executes on growth beyond the Humira drug product line.
Disclosure: The author owns shares of AbbVie.
