Low valuations and an insider who sold near the top buying makes AbbVie Inc. (ABBV) an intriguing total return play in the next year.
Merriam-Webster defines “cluster” as a number of similar things that occur together. When more than one insider from the same company decide to by their stock at the same time, we call it cluster buys. Like-minded executives and directors acting simultaneously is something investors should watch closely. They know the prospects better than anybody and when a group buys or sells in a short window, it’s time to investigate.
Since June 26, 2019, four AbbVie insiders have acquired shares of the drug maker.
- Director Edward Rapp bought 7,500 shares at $67.30 on June 26th.
- Director Roxanne Austin has been on a buying spree, purchasing a total of 76,500 shares in the last two-months.
- Officer Henry Gosebruch bought 30,000 shares on July 29th at $67.28.
- Officer William Chase wrote a check for more than $2 million to buy 30,400 shares at $67.30.
Chase is the star performer of the quartet from our view. He’s done nothing but exercise options and sell, going back to February 2018. He unloaded shares in the open market at $119.44 on February 2018. He sold some more at $114.50 in April 2018. Both early 2018 sells were near the two-year high. That’s some excellent timing.
Later in the year, he must have wanted to buy some nice Christmas presents after he let go of $5.4 million in mid-December 2018.
Suddenly, he adlibs Sesame Street‘s “one of these sounds is not like the others”. He buys $2.4 million as mentioned up top. Can you tell which sound is not like the others? He sold at the top and it appears Chase might be bottom fishing as ABBV is trading at 52-week lows and its lowest price since August 2017.
Selling at the top, perhaps trying to buy at the bottom? Insiders who “get it right” stand out in our opinion. If they have a “knack” for acting before the stock goes up or down, the stock might be worth consideration.
Wall Street has a one-year consensus target price of $86 on AbbVie. That’s more than 30% higher than its current level of around $65, give or take 50 cents. Add in the $4.28 dividend, and investors could make a total return in the neighborhood of 40% at the street’s target. Heck, a 6.55% dividend yield on a $32 billion company makes ABBV attractive from an income standpoint.
From this year to next, earnings-per-share (EPS) are expected to increase from $8.89 to $9.46. Revenue is slated to rise to $34.6 billion from $33.07 billion.
In the last five years, ABBV has traded with a price-to-earnings (P/E) ratio ranging from 7.4 to 22.04 while averaging 14.03. Considering the current P/E is at the five-year low, the cluster buy of AbbVie could well be bottom fishing.
Using today’s ratio and next year’s $9.46 outlook, the stock would trade at $70. That ain’t much, but at least you’ll collect a nice dividend along the way. Investors would have to be willing to pay 9.09 times 2020’s estimate to hit analysts’ $86 price tag. At the half-decade average P/E, shares would climb to $132.72.
Like price-to-earnings, the healthcare company currently trades at its lowest price-to-sales (P/S) ratio in five-years. As of this writing, ABBV is valued at 2.94 times revenue. Typically, its been priced closer to 4.5 times the top line.
At next year’s sales consensus of $34.6 billion, the stock would trade at $68.73 using today’s P/S ratio. Again, not much upside. Eighty-six bucks requires a valuation of 3.68 times sales, well below the five-year average.
The Play: With multiple insiders buying ABBV at/near its 52-week low (especially considering William Chase’s track record), the stock trading at five-year lows for P/E and P/S, and a nice 6.55% annual dividend yield, AbbVie appears to offer long-term investors an attractive potential total return. If it hits Wall Street’s one-year price target, shareholders would earn close to 40% from its current level.
