Options Traders Suggest a Little Patience is Necessary for AbbVie (ABBV)

By the numbers, biopharmaceutical giant AbbVie (ABBV) seems a solid candidate for a long-term investment. In the trailing year, for instance, ABBV stock gained 14.5% of equity value. This compares very favorably to the S&P 500, which is still down 16%. Nevertheless, recent data suggests a reversal of sentiment.

In the trailing five sessions, the benchmark equites index gained slightly over 4%. On the other hand, ABBV stock slipped 3.6% during the same period. Notably, on Jan. 10, Zacks Equity Research picked up on the seemingly inverse relationship, stating that AbbVie lagged both the S&P 500 and the broader medical sector in the trailing month since the date of publication.

Late last week according to a filing with the U.S. Securities and Exchange Commission, management disclosed that it lowered its earnings outlook for the fourth quarter of 2022, along with the full year. Naturally, with a troubling economic environment characterized by soaring inflation and global recession fears, any downgrade may be deemed more problematic than usual.

Aside from outside fundamental factors, the next biggest company-specific influencer for ABBV stock will likely be AbbVie’s Q4 earnings report, which is expected to be released on Feb. 9.

Still, not everything about the biopharma features an apprehensive narrative. For instance, Zacks stated that “AbbVie is holding a Forward P/E ratio of 13.82. Its industry sports an average Forward P/E of 14.54, so we [sic] one might conclude that AbbVie is trading at a discount comparatively.”

Moreover, Motley Fool emphasizes that AbbVie represents a dividend king. “It has raised its payouts for 50 consecutive years. In fact, the company recently announced a 5% dividend increase. AbbVie's cash payout ratio of 43% shows that it generates more than enough free cash flow to cover its current dividend and be able to afford even more increases.”

With so much turmoil in the new normal, reliable dividends may be well worth underlying premiums. Even better for ABBV stock, options traders appear to be voting with their wallets.

Huge Options Volume Spike for ABBV Stock

Following the close of the Jan. 11 session, ABBV stock represented one of the highlights in Barchart.com’s screener for unusual stock options volume. This stat shows the difference between the current volume and the average volume over the past month. Traders typically utilize this information to determine which stocks may be due for big moves ahead.

Specifically, ABBV’s volume level reached 181,804 contracts against an open interest reading of 454,411. Call volume hit 167,536 contracts versus put volume of 14,268. Further, the delta between the trailing-month average total volume versus the prior session volume came out to 562.74%. The implied volatility (IV) rank hit 40.15%, which indicates the (at the money) average IV relative to the highest and lowest values over the trailing one-year period.

To summarize, IV signifies the expected volatility of a stock over the life of an option. As certain influencing factors for the underlying investment changes, the IV will likely change as well. Further, as demand for an option increases, so too will its IV.

The IV low for ABBV stock was 19.62% on Feb. 9, 2022. Several months later on Sept. 30, ABBV hit its IV high of 35.40%. Prospective investors should note that per Barchart.com’s technical analysis gauge, ABBV ranks as an average 40% buy.

Across the full length of the time spectrum (short, medium and long term), technical indicators point to a split sentiment. While ABBV stock gained almost 57% in the trailing five years, in the past month since the time of writing, shares fell nearly 5%.

Presently, most covering analysts maintain a modestly optimistic view regarding ABBV stock. Three months ago, Wall Street experts rated shares as a “moderate buy,” breaking down as eight strong buys, one moderate buy, six holds and one strong sell. In the current month, the consensus rating remains the same. However, ABBV now carries six strong buys and seven holds.

To be fair, investors should note that ABBV stock currently features a 60-month beta of 0.69, which is noticeably less volatile than the benchmark equities index. Therefore, more investors should theoretically feel comfortable with AbbVie.

Botox Might Help Boost AbbVie’s Profile

Prior to the COVID-19 pandemic, AbbVie gained significant attention for buying out Allergan for about $63 billion. In turn, this deal gave AbbVie control of the lucrative wrinkle treatment Botox.

To be sure, the pandemic didn’t help ABBV stock, both as a wide-ranging headwind and specifically impeding Botox’s relevancy. After all, the whole point of reducing wrinkles is to look more attractive and presentable to others. However, being sheltered away from everybody during the worst of the global health crisis, Botox lost a key sales catalyst.

Nevertheless, with government agencies relaxing previously strict COVID protocols, Botox will likely storm back into relevance. Not only that, several companies have now requested that their employees return to the office at least part of the week. This too should lift Botox sales, organically benefitting ABBV stock.

Combined with other factors such as positive sentiment in the options market, low historical volatility and an undervalued profile relative to forward earnings, AbbVie can eventually find its footing. Therefore, don’t be too quick on giving up on ABBV stock.

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