Calls of the Day: Abbvie, Vertex, Veeva and Vistra

This segment of CNBC's "Halftime Report" focuses on "Calls of the Day," providing investment analysis and stock recommendations for several companies, with significant attention paid to the pharmaceutical, biotech, and life sciences technology sectors, specifically AbbVie, Vertex, and Veeva. The discussion begins with a bullish perspective on biotech, but quickly pivots to favor established biopharmaceutical companies that possess robust product pipelines alongside existing, profitable, FDA-approved drugs. This approach contrasts with investing in early-stage development companies, which are characterized as "lottery tickets" due to the high risk associated with waiting for drug trial success and regulatory approval.

The analysis of the biopharmaceutical sector highlights two key players: AbbVie and Vertex. AbbVie is noted for its attractive valuation, trading at a mid-teens multiple, and offering a substantial dividend yield of approximately 3%. The speaker emphasizes that these established companies offer a safer investment profile compared to smaller biotechs, as they already generate significant earnings from approved medications. Vertex is similarly positioned as a larger biopharmaceutical entity, though its valuation is slightly higher. A specific driver for Vertex's appeal is its promising, recently approved pain medication, which represents a significant growth opportunity within its existing portfolio of profitable drugs. The overall investment strategy presented favors companies that combine the stability of current earnings with the potential upside of a developing pipeline.

The most detailed insight is reserved for Veeva, following JP Morgan's upgrade to Overweight. Veeva is identified as a critical cloud-based software provider exclusively serving the life sciences sector. While the analyst acknowledges its high valuation—described as "double nickels"—he justifies the premium by pointing to the company's consistent and reliable revenue growth. Specific data points cited include 16% revenue growth in the last quarter, following 15% and 14% growth in the two prior years, respectively, demonstrating stable, high-teens expansion. Veeva is characterized as a mid-cap company with a market capitalization around $45 billion, maintaining a balanced global footprint with 50% of its revenue exposure in the US and 50% internationally. The discussion concludes by noting that despite its strong performance, the stock was trading approximately 15% below its all-time high set in August 2021, suggesting potential room for recovery and growth.

Key Takeaways: • Preference for Established Biopharma: The investment thesis favors large biopharmaceutical companies like AbbVie and Vertex over smaller, development-stage biotechs, viewing the latter as high-risk "lottery tickets" dependent on single drug approvals. • AbbVie’s Financial Stability: AbbVie is highlighted as a compelling investment due to its mid-teens multiple valuation and an attractive dividend yield of around 3%, indicating strong current earnings and financial health derived from approved products. • Vertex’s Growth Driver: Vertex’s investment appeal is bolstered by its existing portfolio of approved drugs and the recent approval of a new pain medication, positioning it for continued revenue expansion beyond its core offerings. • Veeva’s Strategic Market Position: Veeva is recognized as the dominant cloud-based software provider specializing in the life sciences sector, making it an essential technology partner for the pharmaceutical industry's commercial and clinical operations. • Consistent Revenue Growth Justifies Valuation: Despite its high valuation (described as "double nickels"), Veeva’s premium is justified by its reliable, high-teens revenue growth trajectory, citing 16% growth in the most recent quarter and consistent 14-15% growth in previous years. • Veeva’s Global Footprint: Veeva maintains a balanced global presence, with revenue exposure split evenly (50%/50%) between the US and international markets, demonstrating resilience and diversified market penetration across the life sciences ecosystem. • Market Cap and Price Potential: Veeva is identified as a mid-cap company with a market capitalization of approximately $45 billion, and the analysis notes that the stock was trading 15% below its August 2021 all-time high, suggesting potential upside for investors. • Focus on Earnings vs. Pipeline: The analysis differentiates between companies that already have substantial earnings from approved drugs (AbbVie, Vertex) and those whose value is speculative and tied solely to the success of 1-2 drugs in the development pipeline. • Veeva as a Critical Enterprise Platform: For technology firms serving the life sciences sector, Veeva’s upgrade and strong financial performance confirm its continuing role as the foundational enterprise software platform for commercial operations, reinforcing the need for specialized consulting expertise in this area.

Tools/Resources Mentioned:

• Veeva (Cloud-based software serving the life sciences sector)
• Veeva CRM (Implied, as Veeva is the core platform)

Key Concepts:

• Biopharmaceutical vs. Biotech: A distinction is made between established biopharmaceutical companies (large, multiple approved drugs, stable earnings) and pure biotech companies (smaller, focused on development, high-risk/high-reward based on pipeline success).
• Double Nickels Valuation: A colloquial term used to describe a very high valuation multiple, often referring to a P/E ratio in the 55 range, indicating that the market is willing to pay a premium for high growth and market dominance, as seen with Veeva.