AbbVie Inc (NYSE: ABBV) has been able to win back investor favor ever since it acquired ImmunoGen on Nov. 30, 2023. Since the acquisition, AbbVie's stock has surged over 15%, culminating in a Golden Cross on Jan. 10, driven by bullish market sentiments.
Golden Cross Sighted But Caution Warranted
The 50-day SMA has crossed over the 200-day SMA from below, indicating bullish sentiments surrounding the stock (chart above).
However, if history is any indication (see chart below), a trend analysis of the last two such incidences (December 2022 and October 2023) indicate that the Golden Cross rally hasn't sustained for long after the crossover. In fact, these crossovers were made by the simple moving averages after a majority of the rally had run its course.
Could Wednesday's crossover be a similar case? Considering that the sentiment around AbbVie stock has been bullish since the end of November 2023, traders may want to exercise caution and peek at the fundamental positioning of AbbVie before making any investment decisions.
Strategic Initiatives Could Take Time To Boost Bottom Line
On the fundamental level, AbbVie is experiencing a decline in revenue attributed to the expiration of the Humira patent and heightened competition from biosimilars. This decline has translated into decreased earnings.
While the company has adeptly navigated the erosion of its flagship drug, Humira, by showcasing robust growth in Skyrizi and Rinvoq, this diversification in its product portfolio could take its time to translate and contribute more robustly to AbbVie's top and bottom line performances.
Additionally, AbbVie's reliance on expensive capital raises in the face of elevated interest rates, does warrant some caution from investors. AbbVie's recent acquisition of ImmunoGen can be expected to be bottom-line accretive only by 2030.
AbbVie Stock At Premium Valuations
On the other hand, the YoY decline in AbbVie's earnings has led to significant expansion in AbbVie's price multiple. It now trades at historically elevated levels.
Meanwhile, other stocks in the biotech and pharmaceutical sectors have become more appealing, presenting investors with alternative and potentially more attractive opportunities. At 30.59 P/E GAAP (FWD), AbbVie's stock is significantly more expensive than Amgen Inc (NASDAQ: AMGN) at 22.20 times (forward) earnings or Gilead Sciences Inc (NASDAQ: GILD) trading at 18.30.
The optimistic stock rally since December, fueled by the ImmunoGen acquisition appears to have led the stock to premium valuations. Forward dividend yield for AbbVie stock now stands at 3.82%, way below its pre-covid 5%+ levels.
Considering growth from AbbVie's strategic initiatives appears to be in the long term, investors may want to wait for a moderate pullback. Entering at more attractive yields may fetch investors a more favorable risk-reward profile on an AbbVie stock investment.