Cramer's Investing Club: We're encouraged AbbVie shares held recent gains after a mixed quarter

Published Wed, Feb 2 202212:21 PM ESTUpdated Wed, Feb 2 20222:09 PM EST

Investing Club holding AbbVie (ABBV) reported mixed fourth-quarter results before the opening bell Wednesday. While revenue came up a bit short of expectations, AbbVie shares were holding onto recent gains as management provided FY2022 earnings guidance ahead of estimates and included positive commentary on Skyrizi and Rinvoq, the two most important drugs in the company's portfolio as they are expected to replace Humira and ultimately exceed the Humira sales they are replacing. To this point, management noted on the post-earnings call that "following the U.S. Humira [loss of exclusivity] event in 2023, [they] expect to quickly return to growth in 2024 and deliver a high single-digit growth from 2025 to the end of the decade." Bottom line This was an overall solid quarter. Despite some mixed results here and there, we saw strength in all the right places. Investors are finally looking past anticipated FY2023 trough earnings resulting from Humira competition in the U.S., as free cash flow remains supportive of dividend increases, deleveraging efforts and continued investment in research and development. With an attractive sub-10x FY2022 earnings valuation, dividend yield of ~4% and expectations for combined peak sales from Skyrizi and Rinvoq to eventually exceed peak Humira sales, we continue to find the stock attractive despite the recent move higher. However, we would prefer to see shares pull back a bit, before upgrading the name to a 1 rating in the Charitable Trust portfolio, as we don't like to chase stocks higher. (As a reminder, we rank every stock in the portfolio with a 1 through 3 rating. A stock rated "1" means we would buy it right now. A stock rated "2″ means we would wait for a pullback before buying it. Finally, a "3" rated stock is a position we would sell into strength. You can view the entire portfolio and our ratings here .) Companywide results On the top line, revenue of $14.886 billion missed the $14.98 billion consensus. However, on the bottom line, earnings of $3.31 per share edged out expectations of $3.27 per share. Taking a look at profitability, the adjusted gross margin came in 83.6% (+180bps YoY), ahead of the 82.7% consensus, while the adjusted operating margin of 49.3% (+240bps YoY) was better than the 48% the street was expecting. Guidance Before digging into the just reported quarter, let's take a look at forward guidance. In the first quarter, management expects revenue of $13.5 billion and earnings of $3.10 to $3.14 per share, results that came up short versus revenue expectations of $13.8 billion and earnings of $3.21 per share. Despite the lighter near-term forecast, the full-year commentary was more positive. For the full year 2022, on the top line, management expects revenue of roughly $60 billion, largely in line with expectations. On the bottom line, management's forecast of $14 to $14.20 per share came in ahead of the $14 per share consensus coming into the print. Additionally, management expects adjusted gross margin of ~84% and adjusted operating margin of ~51.5%, both favorable versus expectations of 83% and 50.9%, respectively. Additionally, management expects to generate free cash flow of ~$24 billion, cash that will support the strong and growing dividend while allowing management to reduce leverage. Management expects to reduce debt by just over $12 billion this year and bring the net leverage ratio down to 1.8x by the end of the year. Making up the revenue forecast, management forecasted key product sales as follows: Double digit global Immunology sales, which is better than the ~9% growth the street was looking for. Importantly management expects to realize global Skyrizi sales of $4.4 billion and global Rinvoq sales of $2.7 billion, figures that exceed expectations for Skyrizi and Rinvoq sales of $4.1 billion and $2.63 billion, respectively, for the full year. In Hematologic Oncology , management expects Venclexta and Imbruvica sales of $2.3 billion and $5.4 billion, respectively. That compares to expectations coming into the release for Venclexta and Imbruvica sales of $2.27 billion and $5.73 billion, respectively. In Aesthetics , the team expects global sales of $5.9 billion, a strong guide versus expectations of $5.5 billion. Within the segment, management expects Botox Cosmetic sales of $2.6 billion and Juvederm sales of $1.7 billion, better than expectations of $2.4 billion and $1.63 billion, respectively. On the Neuroscience front, management expects global sales of $6.9 billion, in line with expectations. Within that guide are expectations for Botox therapeutic sales of $2.7 billion, Vraylar sales of $2.2 billion and Ubrevly sales of $800 million, all forecasts that edged out consensus expectations. Eye Care sales guidance of $2.9 billion is better than the $2.69 billion expected, with management expecting Restasis sales of $700 million and assumes to generic competition in the first half of 2022. Finally in Other Key Products , management expects Mavyret sales of $1.7 billion, better than the $1.57 billion expected Segment results Immunology sales of $6.746 billion (+13.3% YoY) came up short versus the $6.789 billion consensus. As a reminder, Immunology is a key focus of analysts as this is where Humira, which is facing a patent cliff, and Skyrizi and Rinvoq, two drugs management is counting on to replace Humira sales once the patent expires, are housed. That said, while the segment's topline did miss expectations, as did Rinvoq sales, the positive takeaway is that combined Skyrizi and Rinvoq sales came in ahead of expectations. Furthermore, with Rinvoq receiving better a than expected atopic dermatitis label in recent weeks from the Food and Drug Administration, investors appear wiling to forgive this fourth-quarter weakness and look ahead to the post-FDA approval opportunity to now capitalize on largely positive dermatologist survey results. Sales within the segment were as follows: Humira: $5.334 billion vs. $5.388 billion expected Skyrizi: $895 million vs. $862 million expected Rinvoq: $517 million vs. $540 million expected Hematologic Oncology sales of $1.873 billion (+4.7% YoY) missed the $1.97 billion consensus. Sales within the segment were as follows: Ibruvica: $1.385 billion vs. $1.467 billion expected Venclexta: $488 million vs. $500 million expected In Aesthetics, a segment that had come under pressure throughout the Covid pandemic as elective surgeries were put on hold, sales of $1.407 billion (+22.8% YoY) came in well ahead of the $1.295 billion consensus. Management commented on the call that "AbbVie's increased promotional investments are driving accelerated category growth, especially in toxins and fillers, where there is substantial room for additional market penetration globally." Sales within the segment were as follows: Botox Cosmetic: $626 million vs. $575 million expected Juvaderm: $432 million vs. $370 million expected Other: $349 million vs. $370 million expected In Neurosceince, sales of $1.654 billion (+19% YoY) outpaced the $1.598 billion consensus. On the call, management commented that "Ubrevly and Qulipta are both demonstrating strong launch trajectories in migraine, with each treatment expected to contribute more than $1 billion in peak sales." Additionally, the team noted that "Vraylar continues to have a significant opportunity with currently approved indications with peak sales expected to approach $4 billion, an approval in major depressive disorder represents upside to [management's] current projections." Sales within the segment were as follows: Botox Therapeutic: $671 million vs. $610 million expected Vraylar: $489 million vs. 521 million expected Duodopa: $ 128 million vs. $138 million expected Ubrelvy: $183 million vs. $176 million expected Other: $183 million vs. $178 million expected In Eye Care, sales of $960 million outpaced the $842 million consensus. Sales within the segment were as follows: Lumigan: $149 million vs. $155 million expected Alphagan: $141 million vs. $130 million expected Restasis: $364 million vs. $311 million expected Other: $306 million vs. $288 million expected In Woman's Health, sales of $223 million came up short versus expectations of $253 million. Sales within the segment were as follows: Lo Loestrin: $128 million vs. $131 million expected Orilissa/Oriahnn: $39 million vs. $39 million expected Other: $56 million vs. $67 million expected Finally, in Other Key Products, sales of $1.429 billion were a tick below expectations of $1.432 billion. Sales within the segment were as follows: Mavyret: $427 million vs. $439 million expected Creon: $327 million vs. $332 million expected Lupron: $192 million vs. $168 million expected Linzess/Constella: $287 million vs. $280 million expected Synthroid: $196 million vs. $208 million expected (Jim Cramer's Charitable Trust is long ABBV. See here for a full list of the stocks.) Correction: This story has been updated to reflect the correct sales versus expectations for Humira, Skyrizi and Rinvoq. As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

A sign stands outside a Abbvie facility in Cambridge, Massachusetts, May 20, 2021.

Brian Snyder | Reuters

Investing Club holding AbbVie (ABBV) reported mixed fourth-quarter results before the opening bell Wednesday.

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