AbbVie ABBV is set to report its third quarter results before the opening bell on Friday, November 1. The large cap pharmaceutical company has seen its shares decline over 15% in 2019 thus far, lagging behind the broader pharma market’s gain.

The Humira manufacturer boasts a hefty dividend that it has steadily increased over the past several years and is actively adding new medications to its portfolio, but should it be enough for investors to bet on the company? Let’s take a closer look at AbbVie and how the company might report its third quarter results.

Allergan Acquisition

AbbVie has become almost synonymous with its best-selling drug, Humira, as it has generated the majority of its revenues for the past couple of years. Despite the success the company has had with Humira, it has done anything but become complacent.

AbbVie recently acquired Botox manufacturer, Allergen, for about $63 billion. The blockbuster deal strengthened AbbVie’s portfolio of drugs and gave it more avenues to find new potentially high-revenue treatments. Allergan’s pipeline has a number of promising products that can accelerate revenue growth in the company immediately as well as in the long-term.

This includes its depression treatment Vraylar as well as a new pipeline of drug candidates intended to treat gastroparesis and nonalcoholic steatohepatitis (NASH). In addition to these revenue boosting pipelines, Allergan's Botox and implant products are also expected to remain solid revenue drivers for AbbVie once the merger comes together.

The sheer size of the deal with all that it brings to the table for AbbVie helps the pharmaceutical company secure a portfolio of drugs that can provide stable revenue streams for years to come. The Allergan acquisition comes just as AbbVie needed to start weening itself off of its financial dependence on Humira.

Outlook

AbbVie’s leading income generator, Humira, is expected to decline in sales over the next several years as the company’s patent expired in 2016 and low-cost biosimilars were introduced in Europe late last year. The European biosimilars will likely lead to eroding international sales but Humira should continue to dominate the domestic market until biosimilars are introduced in around 2023. Currently, Humira accounts for 60% of AbbVie's sales, but following the merger, Humira accounts for only 40% of the company's revenues.

AbbVie has also been ramping up its development of its own drugs to combat eroding Humira sales such as Skyrizi, Venclexta, and Imbruvica. Skyrizi, a medicine for moderate to severe plaque psoriasis, was approved in both the US and Europe in April, and generated $42 million in revenues during the second quarter. Venclexta and Imbruvica had combined sales of $1.2 billion for a 35.5% year-over-year jump.

Our Q3 consensus estimates forecast a bottom-line hike of 7.01% to $2.29 per share on the back of a 2.14% pop in sales to $8.41 billion. Humira is projected to generate $4.92 billion for a 3.95% drop off from the year ago quarter. Imbruvica is estimated to grow 22.98% to $1.2 billion and Venclexta is projected to more than double from Q3 2018’s figure to $207.5 million. Looking at fiscal 2019, our estimates call for earnings to grow 12.9% to $8.93 per share and for net sales to rally 1.46% to $33.23 billion.

Takeaway

AbbVie has been making several moves to bolster and diversify its portfolio as it recognizes the decline of its Humira sales will be imminent as biosimilar products hit the markets. The company’s investment in the Allergen acquisition while debt heavy, is a move in the right direction as the company prioritizes the long-term trajectory of the business. Keeping busy with patent files for newly developed drugs like Skyrizi should also drive the company’s top-line for years to come.

Apart from its hefty 5.45% dividend yield, ABBV stock is currently trading at a discounted forward multiple relative to the industry average that provides a good entry point for investors who are feeling bullish about the company’s newly structured portfolio. AbbVie’s earning estimates have been revised higher earning the stock a Zacks Rank #2 (Buy).

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