On Friday at market close, I bought 100 shares of AbbVie Inc. (NYSE: ABBV). I can hear the applause now, great job Nathan. Kudos on buying 100 shares of AbbVie stock at $57.60. That would’ve been awesome. Unfortunately, I didn’t buy AbbVie stock at $57.60, I paid $62.50.
On September 8th, I sold a cash secured put on AbbVie. This was a 50 day put, that expired on 10/28. AbbVie reported earnings on 10/28, and they didn’t go in my favor. AbbVie reported an earnings beat, but a revenue miss. Thursday and Friday were bad days for Biotech and related sectors. A few companies saw major price drops due to earnings misses. This led to a sector selloff.
Selling options at or near reporting dates can be risky. In this case, AbbVie’s earnings announcement and the factors I mentioned above led to a stock price drop of 6.28%, finishing at $57.60. Details of the option are listed below.
I paid $62.50 per share, but I was paid a premium of $1.59 per share at the time of my option sale. My real cost per share is $60.91. Still higher than market value, but it softens the blow. I paid $3.31 per share or $331 more than market value for 100 AbbVie shares.
In the options world, I sell covered calls and cash secured puts. I lost this one. I cannot win them all, but I do win most of the time. I plan on making this a winner, it will just take a bit more time. I’ll sell covered calls against my AbbVie stock. If all goes according to plan, my cost basis will be much less than $57.60. Because of this, I’m not really concerned with an entry price $3.31 above market.
This purchase potentially increases my forward annual dividend income by $228.
AbbVie Business Summary
AbbVie Inc. is a research-based bio-pharmaceutical company. The Company develops and markets therapies that address a range of diseases. The Company operates in pharmaceutical products segment. Its 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; metabolic diseases, including thyroid disease and complications associated with cystic fibrosis, as well as other serious health conditions. AbbVie also has a pipeline of new medicines, including over 50 compounds or indications, such as immunology, virology/liver disease, oncology, neurological diseases and women’s health. Its product portfolio includes HUMIRA, IMBRUVICA, HCV products, additional virology products, metabolics/hormones products, endocrinology products and other products. Source: www.schwab.com.
AbbVie Stock Dividend Info
- Annual Dividend Yield of 3.96%
- Annual Dividend Rate (IAD) $2.28
- Payout Ratio (TTM) of 46.57%
- Dividend Coverage Ratio (TTM) of 214.73%
- 3 Year Dividend Growth Rate of 12.8%
AbbVie Stock Valuation
I use F.A.S.T Graphs in most of my posts. Today I’m using FinBox. I’ve had this service for a while, but I haven’t used it much. Finbox offers a bunch of cool pre-built models. Each model can be edited but I’ve found that the models are pretty good as is. I’m featuring a few today. The models below are unedited.
FinBox offers a one-click valuation view of a stocks. Below is the FinBox AbbVie Stock valuation. 17% upside, or $67.50 is the current upside and value FinBox assigns to AbbVie stock.
AbbVie Stock Discounted Cash Flow
FinBox pre-built models still need a few user inputs. In the model below I chose a 10-year forecast and revenue multiple as my inputs. I choose these two inputs because AbbVie is a newer company and it is in a sector known for volatility.
A cool feature of FinBox is Checks Passing. See below, that my inputs are validated by the model. If I selected 5 years and Growth Rate, Checks Passing, would’ve said Checks Failing. This doesn’t mean model calculations are incorrect, but it does mean that I should validate my assumptions.
The output of this model are shown in the image below. FinBox is giving AbbVie 44% upside, which is fair value of $82.69.
AbbVie Stock Dividend Discount Model
Only one input is needed to generate the FinBox DD model. I chose Multi Stage because ABBV has a short operating history.
The FinBox DDM output is showing 65% upside, which is a fair value of $95.02.
- Morningstar ranks ABBV 4 out of 5 stars, with a fair value of $73
- S&P Capital IQ ranks ABBV 4 out of 5 stars, with a 12-month price target of $84.
It’s great to see a little market volatility. It was a boring summer for me. Nothing to buy. Biotech and Pharmaceuticals are showing softness. There’s a bunch of opportunity in these spaces. Cardinal Health (CAH), McKesson Corporation (MCK) look promising. I’m also seeing softness in banking.
I’m sticking to my guess that Q1 will see a market correction. At least I’m hoping we see one. I think Bio and Pharma companies will continue to slide in coming months, especially if Clinton wins the upcoming presidential election. We may see some irrational price drops due to drug pricing reform talk. If this happens I’ll buy a bunch more stock in this space; likely as a temporary hold, just to make money. If it doesn’t happen, I’m happy with my 100+ shares of GILD and now ABBV.
I’ve also taken advantage of sector weakness to sell a cash secured put on Amgen. This stock tumbled on last Friday as well. I like the put I sold with a strike price of $135. You can learn more about this Amgen option over at my other site, Options Hunting.
What do you think of my AbbVie,stock purchase? Are you an ABBV shareholder? Are you buying or selling any stock?
Full Disclosure: Long ABBV