AbbVie's Q3 Beat Reinforces Growth Amid Elevated Valuation and Regulatory Risks

What happened

A recent article highlights AbbVie's third-quarter results exceeding expectations, with sales from its top drugs soaring, indicating strong operational performance. This aligns with the DeepValue report's findings of robust growth in Skyrizi and Rinvoq, which grew 51% and 53% in constant currency in 2024, supporting the transition from Humira. However, the report notes that AbbVie's stock is trading at stretched valuations, with a P/E of 107 and EV/EBITDA around 49, well above the DCF base of $165, suggesting limited upside. Persistent risks include high leverage at 4.2x net debt to EBITDA and ongoing pressures from IRA price-setting for drugs like Imbruvica in 2026 and PBM formulary exclusions. Thus, while execution is solid, the investment case remains tempered by these structural headwinds.

Implication

The Q3 performance confirms AbbVie's growth trajectory but does not justify a buy given the stock's premium pricing relative to fundamentals. Elevated P/E and EV/EBITDA ratios imply limited safety margins, especially with a DCF base significantly below current levels. High leverage could strain financial resilience if earnings face pressure from upcoming IRA-mandated price cuts or competitive erosion. Regulatory risks, such as PBM exclusions and drug pricing reforms, add volatility that may not be fully priced in. Therefore, maintaining a HOLD is prudent, with a focus on monitoring Skyrizi/Rinvoq execution and policy outcomes for future re-evaluation.

Thesis delta

The positive Q3 results provide incremental confirmation of AbbVie's growth assets but do not alter the core investment thesis. Valuation concerns and regulatory risks remain paramount, sustaining the HOLD recommendation. No material shift is indicated, as the news merely reinforces existing data points without addressing underlying headwinds.