AbbVie: Q2 Earnings Validate Bullish Case

Investment Thesis - The stock of AbbVie (ABBV) has notably outperformed the broader U.S. market since mid-April, reinforcing the initial bullish thesis [1] - The company delivered robust Q2 earnings with revenue growth across all business lines and expanding operating leverage, indicating efficient growth management [1] - The valuation remains attractive, and the "Strong Buy" rating is reiterated [1] Financial Analysis and Q2 Earnings Review - ABBV reported a solid Q2 revenue beat, with revenue growing by 4.3% YoY and operating margin expanding from 34.4% to 35.1% [2][3] - Despite EPS figures below consensus estimates, the stock rallied by more than 5% post-earnings due to an upgraded full-year EPS guidance [2] - Humira's revenue decline was expected due to patent expiration, but younger products like Skyrizi and Rinvoq showed immense growth momentum [3] Revenue Breakdown by Product - Humira's revenue declined significantly, with Q2 2024 revenue at $2,814 million, down 29.9% YoY [4] - Skyrizi and Rinvoq demonstrated strong growth, with Skyrizi revenue at $2,727 million (up 44.8% YoY) and Rinvoq at $1,430 million (up 55.8% YoY) in Q2 2024 [4] Business Segment Growth - ABBV achieved revenue growth across all business lines: Immunology, Oncology, Neuroscience, and Aesthetics, indicating a robust and resilient business mix [5] - The company's R&D efficiency is highlighted, with R&D expenses translating into successful product launches [5] Immunology Market Position - ABBV holds a 25% market share in the immunology drugs market, which was valued at $98.5 billion in 2023 [7] - Skyrizi and Rinvoq are expected to drive significant growth, with U.S. patents expiring in 2033, ensuring no generic competition until then [7] Oncology and Aesthetics Market Outlook - The oncology drugs market is projected to grow at an 11.3% CAGR by 2032, and ABBV's success across business lines suggests potential for growth in this niche [8] - The aesthetics market, driven by social media influence, is expected to show double-digit CAGR by 2033, with ABBV's Botox product maintaining a strong position [9] Valuation Update - ABBV's valuation ratios appear high, but historical comparisons are skewed due to recent revenue and profit spikes post-Allergan acquisition [10] - The dividend discount model (DDM) suggests a fair value of $249, representing a 35% upside from the current share price [13] Risks and Competition - ABBV faces competition in the immunology market, with alternative therapies emerging [14] - The company's reliance on new products like Skyrizi and Rinvoq to replace Humira's revenue is a key risk, as future success is not guaranteed [14] Bottom Line - ABBV remains a "Strong Buy" due to strong Q2 earnings, robust fundamentals, and attractive valuation, despite recent market outperformance [16]