Stock Analysis on Net

AbbVie Inc. (NYSE:ABBV)

Dividend Discount Model (DDM) 

Microsoft Excel

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Dividends are the cleanest and most straightforward measure of cash flow because these are clearly cash flows that go directly to the investor.


Intrinsic Stock Value (Valuation Summary)

AbbVie Inc., dividends per share (DPS) forecast

US$

Microsoft Excel
Year Value DPSt or Terminal value (TVt) Calculation Present value at 9.75%
0 DPS01 5.92
1 DPS1 4.75 = 5.92 × (1 + -19.77%) 4.33
2 DPS2 4.12 = 4.75 × (1 + -13.26%) 3.42
3 DPS3 3.84 = 4.12 × (1 + -6.75%) 2.91
4 DPS4 3.83 = 3.84 × (1 + -0.24%) 2.64
5 DPS5 4.07 = 3.83 × (1 + 6.27%) 2.56
5 Terminal value (TV5) 124.06 = 4.07 × (1 + 6.27%) ÷ (9.75%6.27%) 77.90
Intrinsic value of AbbVie Inc. common stock (per share) $93.75
Current share price $180.35

Based on: 10-K (reporting date: 2023-12-31).

1 DPS0 = Sum of the last year dividends per share of AbbVie Inc. common stock. See details »

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.


Required Rate of Return (r)

Microsoft Excel
Assumptions
Rate of return on LT Treasury Composite1 RF 4.43%
Expected rate of return on market portfolio2 E(RM) 13.60%
Systematic risk of AbbVie Inc. common stock βABBV 0.58
 
Required rate of return on AbbVie Inc. common stock3 rABBV 9.75%

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

2 See details »

3 rABBV = RF + βABBV [E(RM) – RF]
= 4.43% + 0.58 [13.60%4.43%]
= 9.75%


Dividend Growth Rate (g)

Dividend growth rate (g) implied by PRAT model

AbbVie Inc., PRAT model

Microsoft Excel
Average Dec 31, 2023 Dec 31, 2022 Dec 31, 2021 Dec 31, 2020 Dec 31, 2019
Selected Financial Data (US$ in millions)
Dividends declared 10,647 10,179 9,470 8,278 6,533
Net earnings attributable to AbbVie Inc. 4,863 11,836 11,542 4,616 7,882
Net revenues 54,318 58,054 56,197 45,804 33,266
Total assets 134,711 138,805 146,529 150,565 89,115
Stockholders’ equity (deficit) 10,360 17,254 15,408 13,076 (8,172)
Financial Ratios
Retention rate1 -1.19 0.14 0.18 -0.79 0.17
Profit margin2 8.95% 20.39% 20.54% 10.08% 23.69%
Asset turnover3 0.40 0.42 0.38 0.30 0.37
Financial leverage4 13.00 8.04 9.51 11.51
Averages
Retention rate -0.30
Profit margin 16.73%
Asset turnover 0.38
Financial leverage 10.52
 
Dividend growth rate (g)5 -19.77%

Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).

2023 Calculations

1 Retention rate = (Net earnings attributable to AbbVie Inc. – Dividends declared) ÷ Net earnings attributable to AbbVie Inc.
= (4,86310,647) ÷ 4,863
= -1.19

2 Profit margin = 100 × Net earnings attributable to AbbVie Inc. ÷ Net revenues
= 100 × 4,863 ÷ 54,318
= 8.95%

3 Asset turnover = Net revenues ÷ Total assets
= 54,318 ÷ 134,711
= 0.40

4 Financial leverage = Total assets ÷ Stockholders’ equity (deficit)
= 134,711 ÷ 10,360
= 13.00

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= -0.30 × 16.73% × 0.38 × 10.52
= -19.77%


Dividend growth rate (g) implied by Gordon growth model

g = 100 × (P0 × rD0) ÷ (P0 + D0)
= 100 × ($180.35 × 9.75%$5.92) ÷ ($180.35 + $5.92)
= 6.27%

where:
P0 = current price of share of AbbVie Inc. common stock
D0 = the last year dividends per share of AbbVie Inc. common stock
r = required rate of return on AbbVie Inc. common stock


Dividend growth rate (g) forecast

AbbVie Inc., H-model

Microsoft Excel
Year Value gt
1 g1 -19.77%
2 g2 -13.26%
3 g3 -6.75%
4 g4 -0.24%
5 and thereafter g5 6.27%

where:
g1 is implied by PRAT model
g5 is implied by Gordon growth model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5g1) × (2 – 1) ÷ (5 – 1)
= -19.77% + (6.27%-19.77%) × (2 – 1) ÷ (5 – 1)
= -13.26%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= -19.77% + (6.27%-19.77%) × (3 – 1) ÷ (5 – 1)
= -6.75%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= -19.77% + (6.27%-19.77%) × (4 – 1) ÷ (5 – 1)
= -0.24%