AbbVie Trading at $35

AbbVie (ABBV) began when-issued trading (ABBV-WI) today at $35+. This is well below my estimate of $45. The market must really not like the fact it is dependent on one drug, Humira. At this price, AbbVie will be trading at 10 times 2012 FCF with a nearly 5% dividend. 

This means that new Abbott will trade around $30. This will be over 20 times FCF and 12 times operating cash flow. It seems a bit expensive.

Disclosure: I do not own Abbott

Abbott Spinoff Analyzed

I spent some time this weekend taking a deeper look at the spin-off of Abbott’s (ABT) pharmaceutical unit, AbbVie Inc. (ABBV). For every share of Abbott at the close of business on December 12, 2012, investors will receive one share of AbbVie common stock. Abbott expects that AbbVie stock will be distributed on Jan. 1, 2013. AbbVie will trade on a “when issued” basis this Monday, December 10, 2012 under the symbol ABBV.WI.

AbbVie

AbbVie generates most of Abbott’s profit. For 2012, it will have between $5 – $6 billion in FCF or around $3.50/share. Earnings and revenue are growing. However, they are highly dependent on one drug, Humira. The patent for Humira expires in late 2016. As a result, AbbVie is a bit risky. Future growth, after Humiras patent expires, will depend on it finding new drugs.

The company expects to pay an annual dividend of $1.60/share. I expect the stock to trade around 12 to 13 times earnings or around $45. At this price, it should give a nice dividend of 3.5%. I personally would not want to own this stock because of the dependent on Humira.

Abbott

Abbott looks interesting post spin-off. The company expects operating cash flow of $4 billion after spin-off. If you factor in depreciation, interest expense, taxes and other expenses, Abbott’s FCF should be around $2 billion.

Abbott has market leading products across their different segments. It expects to grow revenue in mid-to-high-single-digits in 2013. Earnings could grow faster due to margin improvements. I expect it to trade around 15 times earnings or $20/share+.

Conclusion

Once AbbVie trades on a “when issued” basis this Monday, we should find out what the market thinks of the value of AbbVie. I think new Abbott will be a steal at any significant discount to my $20 fair value.

Disclosure: I do not own Abbott.

Abbott Board Approves Spin-off

Abbott (ABT) announced today that its board approved the spin-off of its research-based pharmaceuticals business Abbvie (ABBV). For every one share of Abbott, investors will receive one share of Abbvie. The distribution is expected to be paid on Jan 1st 2013 to holders of common stock at the close of Dec. 12. 2012.

Read more about it here.

Disclosure: I do not own ABT