Cure and Prosper
In this edition of the Smart Investor newsletter, we spotlight a global biopharma leader reshaping its growth engine. But first, let’s review the latest Smart Portfolio developments.
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Portfolio News and Updates
❖❖ IBM (IBM) became another victim of Anthropic’s new AI release batch, as the stock tumbled by about 13% on Monday, marking its worst one-day drop since October 2000. Anthropic said that its Claude Code tool can now automate key parts of COBOL modernization, potentially compressing multi-year, consultant-heavy projects into quarters. This sparked fears that the tech giant’s legacy business could be in trouble.
COBOL, a programming language from 1950s, still powers critical backend systems in banking, insurance, government, and airlines – running on IBM mainframes and generating massive recurring revenue through hardware, software licensing, maintenance, consulting, and ecosystem lock-in. Modernizing away from COBOL has historically been extremely expensive, slow, risky, and talent-scarce. If enterprises can more easily escape COBOL and mainframe lock-in, they theoretically may reduce their dependence on IBM’s high-margin ecosystem.
However, dip-buyers stepped in on Tuesday, as analysts including CFRA, Evercore ISI, and Jeffries maintained their Buy ratings and price targets, arguing the AI threat is considerably overblown. IBM’s mainframe value proposition remains intact given full-stack optimization for transaction processing, and new AI tools may actually extend COBOL system relevance by aiding knowledge transfer as experts retire.
Jeffries added that IBM is already proactively “disrupting” the legacy systems, with watsonx Code Assistant for Z embedding GenAI directly into the mainframe to refactor COBOL into Java and modernize apps with full system context. IBM also pushed back, as its COO wrote that translation captures almost none of the actual complexity in modernizing enterprise systems, emphasizing that platform architecture, not the programming language, determines mainframe value.
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❖ Overall, IBM – and other stocks that continued grinding down on Monday following Anthropic’s previous announcements – could have weathered the news much better. In fact, the stock reactions likely would have been more aligned with the business reality had a note from Citrini Research not been released. The note, titled “The 2028 Global Intelligence Crisis,” hit the airwaves over the weekend, and went viral as a dramatic, hypothetical scenario of AI causing mass white-collar unemployment, economic contraction, and widespread business model destruction by 2028. It explicitly named or at least implied risks to software, finance, payments, etc., acting as a catalyst for extreme market nervousness in an already jittery environment, and primed investors with broad fear.
The Citrini note sparked a broad sell-off, and while IBM was the most affected among the Smart Portfolio stocks due to coinciding with Claude’s COBOL announcement, others were also hit. Software and enterprise plays like Oracle, Microsoft, Amazon, and CrowdStrike were under serious pressure, and even banking giants like JPMorgan and Citigroup felt the heat of Citrini’s warnings on private credit exposure, AI-related loan defaults, and intermediation risks. However, the Citrini meme’s effects seem to already be fading, although it is possible that another scare accelerant will appear soon as fear-mongering looks in vogue in the current market atmosphere.
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❖ In other news, IBM and Japan’s RIKEN research institute demonstrated a hybrid quantum-classical system at unprecedented scale. They integrated IBM’s on-premises Quantum Heron processor with RIKEN’s massive classical supercomputer Fugaku, one of the world’s fastest, in a closed-loop workflow. This enabled the largest and most accurate quantum chemistry simulation to date, reaching an important milestone in quantum-centric supercomputing (QCSC) research. The experiment shows tangible progress toward quantum’s practical utility and validates IBM’s hybrid approach.
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❖❖ Amazon (AMZN) officially became the world’s largest company by sales. Walmart reported 2025 sales of $713 billion, below AMZN’s total for the year. The big box retailer continues to expand its e-commerce and advertising revenues, along with AI features and partnerships and drone deliveries. However, it is lacking the significant revenue-growth engine that Amazon has – the world’s largest cloud service, AWS.
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❖❖ Jones Lang Lasalle (JLL) posted record fourth-quarter results that wrapped up a strong year for the company. Q4 marked JLL’s seventh consecutive quarter of double-digit revenue growth and ninth consecutive quarter of double-digit EPS growth.
Q4 2025 revenue increased 12% year-over-year to $7.61 billion, surpassing the consensus estimate of $7.5 billion. Top-line expansion was broad-based, driven by Capital Markets Services with 19% and Leasing with 17%, while Real Estate Management Services rose by a solid 9%. Revenue growth coupled with improved platform leverage drove strong profit and margin expansion, with Q4 adjusted diluted EPS of $8.71 up 42% year-over-year and well above consensus of $7.35 and adjusted EBITDA up 30% to $589.1 million.
For the full year, JLL reported an 11% increase in revenue, which arrived at $26.12 billion. Adjusted EBITDA jumped 22% from 2024, reaching $1.45 billion, with both metrics achieving the high end of the company’s financial target. Annual adjusted diluted EPS soared 34% from the previous year, reaching $18.80. Drivers of full-year profit and margin expansion were largely consistent with the fourth-quarter drivers with the most significant contributions coming from Leasing Advisory and Capital Markets.
Management emphasized proprietary data, AI and tech-enabled productivity gains as contributors to higher productivity and margin expansion. JLL’s relatively new software and tech segment achieved profitability in Q4, while the firm’s data center-related work doubled year-over-year across lines of business.
During the year, Jones Lang Lasalle significantly reduced its total net debt, arriving at 0.2x leverage at end-of-year and further cementing its solid investment-grade credit rating. The company clocked in stellar liquidity, with cash provided by operating activities reaching a record $1.2 billion for the year, free cash flow of record $979 million, and FCF conversion of 108%. JLL repurchased $80.3 million in shares during the quarter, bringing full-year repurchases to $211.5 million, a 163% increase versus 2024.
For 2026, JLL is targeting an adjusted EBITDA of $1.58-1.68 billion (12% growth at the midpoint) with continued margin expansion. Management said it plans to further expand buybacks in 2026.
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❖❖ Keysight Technologies (KEYS) saw its stock surge by more than 20% on Tuesday after it delivered a stellar “beat-and-raise” report. The electronic design and test equipment maker delivered record revenue of $1.60 billion in its fiscal Q1, up 23% year-over-year, beating consensus. Adjusted EPS jumped over 19% to $2.17, topping the analyst expectations by a wide margin. Outperformance was driven by broad-based growth across all segments and regions with orders up 30% year-over-year, indicating meaningful demand acceleration and a robust funnel.
While the strong report could have supported a modest stock rise, what drove the actual surge was KEYS’ blowout guidance hike, driven by exceptionally strong momentum across AI infrastructure, aerospace and defense, and 6G investments. Keysight’s fiscal Q2 2026 revenue is now expected to be in the range of $1.69-1.71 billion, implying 30% year-over-year growth at midpoint, while adjusted EPS is forecast to come in at $2.27-2.33, soaring by more than 35% year-over-year at midpoint – with both metrics well above analyst expectations. Management also raised its full-year fiscal 2026 outlook to 20%+ revenue and earnings growth, up from its previous 10%+ guidance.
Following the report, multiple Wall Street analysts raised price targets, reconfirming their positive stance. Meanwhile, BofA upgraded its rating to Buy from Hold, attaching a Street-high price target of $340, up sharply from $195, saying that Keysight’s demand is broadening beyond AI – across communications, aerospace and defense, semiconductors, etc. – making the order strength more sustainable over the long term.
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Portfolio Stocks Under Review
❖ We are placing CrowdStrike (CRWD) in our “Under Review” bracket ahead of its fiscal Q4 and full-year 2026 earnings report on March 3. Our long-term conviction in the company’s platform strength and competitive moat remains intact. The near-term issue is not business deterioration – it is sentiment fragility in a market that is hypersensitive to anything labeled “AI disruption.”
The most recent selloff was triggered by Anthropic’s limited preview of a Claude capability focused on identifying and fixing software vulnerabilities. That announcement sent CRWD down roughly 8% in a single session and dragged the broader cybersecurity group lower, with the Global X Cybersecurity ETF touching levels last seen in late 2023. In our view, this reaction looks disconnected from the actual competitive landscape.
As Barclays noted, the tool appears to be developer-focused and not even remotely competitive with enterprise-grade security platforms such as Falcon. This isn’t a structural displacement event, but rather a sentiment shock amid frequent announcements of new AI tools threatening various business models. Over the past two years, AI has brought mayhem to the stocks of creative tool makers, customer and work process management platforms, legal and financial intermediaries, and more. It is therefore unsurprising that investors have been trained to hit the “sell” button when they hear about another tool aimed at automating this or that process. Still, no AI agent is going to replace a company providing comprehensive protection, across endpoints, cloud workloads, identity, and data, any time soon.
Importantly, there has been no meaningful shift in CRWD’s ratings. Several price targets were trimmed, but those adjustments largely followed the stock’s performance. Moreover, HSBC recently upgraded the company’s stock to Buy from Hold, and the average price target still implies more than 40% upside. Furthermore, after the Anthropic-driven losses, Wedbush came to the defense of CrowdStrike and its cyber peers, saying that market is conflating foundation model capabilities with full enterprise software replacement. According to analysts, CRWD and its peers are “winners and not losers” in the AI world, with cybersecurity becoming the enforcement layer of AI, not a casualty of it.
Fundamentally, execution remains solid. In fiscal Q3 2026, revenue grew 29% year-over-year, and net new ARR accelerated 73%, an important signal that demand momentum is far from collapsing. Operating income and free cash flow margins were strong. Yes, R&D and go-to-market costs have risen, but that is consistent with a platform investing aggressively to defend and extend its AI-era leadership.
With cybersecurity stocks broadly under pressure, valuation compression has become a sector phenomenon rather than a company-specific problem. Still, CRWD trades at a premium multiple, and in a jittery tape such a premium has the potential to magnify every headline. The debate, therefore, is not about whether CrowdStrike is executing, and there is little doubt about its operational strength. It is about how much investors are willing to pay for a business guiding to roughly 22% revenue growth in fiscal 2026. That is slower than the prior years of hyper-growth, although it remains robust for a company of this scale and strategic positioning.
We are placing CRWD under review not because we subscribe to the belief that AI will somehow remove the need for cybersecurity, but because markets are currently operating in a “show me” mode. Absent a clear upside surprise in ARR, billings, or forward guidance, sentiment alone could continue to weigh on the stock. March 3 will be critical in determining whether growth durability can re-anchor the multiple – or whether volatility persists despite its intact fundamentals.
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❖ We are keeping Oracle (ORCL) in our “Under Review” bracket as we head toward its March 9 earnings report. Our long-term conviction in Oracle’s strategic positioning remains intact, but the near-term setup is now defined less by funding uncertainty and more by capital intensity, free cash flow pressure, and legal and sentiment overhangs tied to its AI buildout.
Oracle has outlined a roughly $45-50 billion capital raise for calendar 2026, split between debt and equity or equity-linked securities, to fund OCI expansion for large AI customers. Investor demand for the debt portion was extremely strong – roughly $125 billion of orders for a ~$25 billion issuance – but that figure reflects orderbook demand, not the amount being raised. Management has stated it does not expect to issue additional bonds in 2026 beyond this transaction, signaling that near-term liquidity risk is largely addressed.
The real debate now shifts to 2027. Free cash flow has turned deeply negative in recent quarters as capex ramps toward ~$50 billion, overwhelming otherwise solid operating cash flow, with OCI capacity being built ahead of revenue conversion. Oracle has modestly increased its fiscal 2027 revenue outlook, citing faster RPO conversion, but investors remain focused on whether backlog – now exceeding $500 billion – can translate into meaningful FCF inflection next year. If utilization ramps as planned, 2027 could mark stabilization. If not, additional funding pressure beyond 2026 becomes the key risk.
Litigation headlines have added noise. A new securities class action alleges that Oracle underplayed the near-term impact of AI-related capex on free cash flow and leverage. These suits are common following sharp stock declines, but they reinforce scrutiny around disclosure, capital intensity, and execution timing.
On the other hand, counterparty fears tied to OpenAI exposure appear to be easing. Reports indicate OpenAI’s latest funding round could exceed $100 billion, with participation from Microsoft, Nvidia, Amazon, and SoftBank. That materially strengthens the funding profile of one of ORCL’s largest AI customers and reduces immediate concerns about contract durability.
At the same time, demand signals remain tangible. Oracle continues to secure meaningful U.S. government awards, including over $1 billion in federal payments over the past year and a new $88 million Air Force Cloud One task order supporting classified workloads through 2028. In the applications layer, Oracle has expanded its AI footprint with dozens of embedded agents across supply chain, finance, and customer experience workflows, reinforcing that its AI strategy extends beyond GPU-heavy infrastructure. Even at the data-center level, the company is emphasizing engineering efficiency, including closed-loop cooling systems designed to minimize water usage – addressing growing environmental optics around large-scale AI infrastructure. This, alongside Oracle’s role as a joint-venture operator of TikTok U.S., which locks in a significant OCI client while offering upside through an equity stake, underscores that Oracle’s revenue base is more diversified than OpenAI-centric fears suggest.
The Street’s tone remains constructive but cautious. Despite a slate of price-target reductions driven by stock declines, there has been only one rating downgrade (from Buy to Hold) by Melius Research – countered by D.A. Davidson’s upgrade from Hold to Buy on the same day, as analysts grew more confident in OpenAI’s ability to meet its huge cloud infrastructure spending commitments, including the massive Oracle deal.
ORCL’s long-term AI and cloud opportunity is intact, yet heavy capex, negative free cash flow, and sector-wide de-risking in AI infrastructure are capping multiples. This is why the March report will be critical in assessing OCI growth durability, capex discipline, and early signs of backlog monetization. Funding clarity has improved; execution clarity is what investors now require.
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Portfolio Earnings and Dividend Calendar
❖ The Q4 2025 earnings season is rolling on, and several Smart Portfolio holdings are scheduled to reveal their results in the coming days. APi Group (APG) and Sterling Infrastructure (STRL) are reporting today, while EMCOR Group (EME), MasTec (MTZ), and Vistra (VST) are expected to post their results tomorrow. Credo Technology (CRDO) is scheduled to report on March 2, CrowdStrike (CRWD) on March 3, and Broadcom (AVGO) on March 4.
❖ The ex-dividend date for Interactive Brokers (IBKR) and Labcorp Holdings (LH) is February 27.
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New Buy: AbbVie (ABBV)
AbbVie, Inc. is a global research-driven biopharmaceutical company focused on developing advanced therapies for some of the world’s most complex and chronic diseases. The company operates at the intersection of immunology, oncology, neuroscience, and specialty care, translating deep scientific expertise into targeted medicines that address unmet medical needs. With a portfolio spanning biologics, small molecules, and next-generation platforms, AbbVie plays a central role in shaping treatment standards across multiple therapeutic areas. Its capabilities extend from early-stage discovery through large-scale manufacturing and global commercialization, allowing it to manage the full life cycle of innovative medicines. By combining internal R&D strength with disciplined acquisitions and partnerships, AbbVie functions as both a scientific innovator and a scaled commercial operator – positioned among the industry’s most influential specialty pharmaceutical leaders.
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Patented Progress
AbbVie’s story began in 2013, when it was spun off from Abbott Laboratories to create a focused, research-driven biopharmaceutical company. The separation sharpened its mandate to build a durable pipeline capable of sustaining leadership beyond Humira, the blockbuster anti-TNF biologic used to treat autoimmune diseases. Humira became one of the best-selling drugs in history, but its eventual loss of exclusivity made reinvention a strategic necessity rather than an option.
A defining turning point came in 2020 with the $63 billion acquisition of Allergan. The deal reshaped ABBV’s portfolio, adding aesthetics through Botox, expanding its neuroscience footprint, and broadening its revenue base beyond immunology. Just as importantly, it strengthened cash flow and diversification ahead of Humira’s U.S. patent expiration in 2023.
The past five years have been about executing that transition. ABBV built its next wave of growth in immunology around Skyrizi and Rinvoq, two next-generation anti-inflammatory therapies designed to succeed Humira. Rather than relying on a single large indication, the company methodically expanded both drugs into additional approved uses, expanding their addressable patient base and reinforcing formulary positioning. Even as Humira faced biosimilar competition and immunology markets remained highly competitive, Skyrizi and Rinvoq have grown into multi-billion-dollar franchises and are widely viewed as AbbVie’s core growth engines for the second half of the decade.
Oncology has been another pillar of reinvention. The 2023 acquisition of ImmunoGen added Elahere and deepened ABBV’s presence in antibody-drug conjugates – a fast-growing segment aligned with precision oncology. In 2024, the company moved further into neuroscience with the acquisition of Cerevel Therapeutics, strengthening its pipeline in schizophrenia, Parkinson’s disease, and mood disorders. This was followed by targeted additions in neurodegeneration, oral immunology, and emerging modalities to reinforce long-term franchise durability. These transactions reflect a deliberate push toward innovative, high-value therapies with durable patent protection.
Alongside acquisitions, AbbVie continued investing heavily in internal drug development, reinforcing the scientific engine that underpins its portfolio. The company increased its focus on late-stage pipeline depth across immunology, oncology, and neuroscience, advancing multiple Phase 3 programs while expanding its biologics and small-molecule capabilities. Significant capital has gone into next-generation antibody-drug conjugates, oral immunology treatments, and neuroscience assets aimed at areas of high unmet need. AbbVie has also invested in advanced biologics manufacturing capacity and digitally enabled clinical development tools designed to shorten trial timelines and improve data precision, supporting faster commercialization and lifecycle management. At the same time, selective pruning of non-core assets has kept capital focused on high-return therapeutic areas.
Through disciplined capital deployment, pipeline depth, and proactive management of patent cycles, ABBV has moved decisively away from its single-franchise roots to become a diversified biopharma leader with multiple expanding growth engines capable of compounding over a longer cycle.
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Molecule to Market
AbbVie today operates across four scaled platforms – immunology, neuroscience, oncology, and aesthetics – while laying the groundwork for a fifth in obesity.
Immunology remains the core, contributing roughly half of total revenue. Skyrizi and Rinvoq are now firmly established as the company’s primary growth engines, generating nearly $26 billion last year – up 46% year-over-year. Skyrizi holds more than a 45% share of the U.S. biologic psoriasis market and captures over 55% of new and switching patients, while maintaining a roughly 75% frontline in-play share in inflammatory bowel disease. The opportunity is no longer just scale, but franchise depth. Both drugs continue expanding across inflammatory bowel disease, dermatology, and rheumatology, with additional label opportunities and combination strategies aimed at defending and extending market share. Meanwhile, the “second wave” immunology stack – including late-stage and mid-stage assets – is positioned to extend the franchise beyond Skyrizi and Rinvoq later in the decade.
Neuroscience, approaching 20% of revenue, is evolving into a second structural growth pillar. The migraine portfolio – Qulipta, Ubrelvy, and Botox Therapeutic – continues to scale, providing a growing chronic-use base. Parkinson’s represents the next expansion vector, where Vyalev has begun contributing commercially with a projected blockbuster trajectory, and Tavapadon is approaching regulatory milestones this year. Assets acquired through Cerevel further deepen the pipeline across psychiatric and neurologic disorders. These are chronic, long-duration markets with room for continued incremental market-share capture.
Oncology, at around 11% of revenue, is being rebuilt around platforms. The recent FDA approval of the Venclexta plus acalabrutinib regimen in first-line CLL strengthens AbbVie’s hematology position with a fixed-duration, all-oral option. Beyond hematology, assets acquired with ImmunoGen provide a foundation for AbbVie’s antibody-drug conjugate (ADC) platform, while the RemeGen licensing deal added a PD-1/VEGF bispecific designed for combination use. The direction is clear – platform-driven combination architecture with a growing pipeline in solid-tumor therapy and next-gen immuno-oncology.
Aesthetics accounted for about 8% of revenue in 2025 and remains an important cash-generative diversifier. While aesthetic treatments are more sensitive to consumer confidence than prescription therapies, Botox remains a category-defining asset with both cosmetic and therapeutic applications, reinforcing AbbVie’s brand power and procedural footprint. The segment adds recurring procedure-based revenue and strengthens the company’s reach beyond traditional reimbursed medicine.
AbbVie is proactively building its fifth platform around accelerating demand for obesity treatments. A $380 million investment in two new active pharmaceutical ingredient facilities in Illinois – integrating advanced technologies and AI-enabled manufacturing, with operations targeted for 2029 – is designed to support next-generation neuroscience and obesity medicines while aligning with U.S. domestic production priorities. The Illinois capacity is being built ahead of AbbVie’s long-acting amylin program, which remains in its early stages, signaling commercialization intent and capital deployment well in advance of anticipated demand.
This investment complements the company’s long-term domestic R&D and capacity commitments, alongside sustained business development across immunology, oncology, neuroscience, and obesity. AbbVie’s growth model now rests on scaling dominant franchises, layering new indications, and deploying capital early into the next cycle of therapies. In essence, the company is building the coming decade’s earnings power today.
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Response Curve
AbbVie closed 2025 with renewed growth momentum. Full-year net revenues reached a record of $61.2 billion, up 8.6% year-over-year, while adjusted EPS came in at $10.00. The inflection was driven by mix – Skyrizi and Rinvoq generated nearly $26 billion combined, now representing the clear earnings engine of the company and reshaping the revenue base toward higher-growth assets. These treatments, along with emerging revenue drivers, more than compensate for the U.S. Humira erosion, estimated at about $16 billion in cumulative sales-value decline since LOE (loss of exclusivity) hit in 2023.
The fourth quarter confirmed the acceleration. Revenue rose about 10% year-over-year to $16.6 billion, marking the eighth consecutive quarterly beat on both revenue and earnings per share. Adjusted EPS of $2.71 grew 25.5% year-over-year and exceeded consensus expectations by a wide margin. Adjusted operating margin expanded approximately 360 basis points from a year earlier, driven by favorable product mix and scale in immunology and neuroscience.
The temporary pressures seen in Q3, when adjusted EPS declined year-over-year, was driven by elevated acquired IPR&D and milestone expenses linked to AbbVie’s business development activity. Those investments funded pipeline expansion in immunology, oncology, neuroscience, and obesity. The rebound in Q4 reflects underlying operating strength and shows that growth investments are being layered onto a business with solid demand and margin discipline.
Those strategic investments are expected to continue driving growth in 2026. For Q1 2026, management projects revenue of about $14.7 billion (up 10% year-over-year at midpoint), adjusted EPS of $2.97-3.01 (up 21.5%), and adjusted operating margin of approximately 46%.
For the full year 2026, management guides to total net revenues of approximately $67 billion, implying 9.5% year-over-year growth. Within that, immunology is projected at roughly $34.5 billion, neuroscience about $12.5 billion, oncology around $6.5 billion, aesthetics near $5 billion, and Humira declining to about $2.9 billion. ABBV’s 2026 adjusted EPS is guided to $14.37-14.57, implying an approximately 45% year-over-year jump in earnings per share. Adjusted gross margin is projected above 84%, adjusted operating margin around 48.5%, and free cash flow is expected to reach roughly $18.5 billion.
Neuroscience is positioned as a key contributor to that expansion. Vyalev is expected to achieve blockbuster status in 2026, reaching approximately $1 billion in sales as its Parkinson’s launch gains traction. At the same time, the migraine franchise – including Qulipta and Ubrelvy – is trending well above prior long-term expectations, with anticipated peak sales now exceeding $5 billion versus earlier guidance of greater than $3 billion. Vraylar continues to scale toward roughly $4 billion in annual sales, reinforcing the segment’s durability.
Immunology remains the largest earnings driver, but the mix shift toward neuroscience and newer oncology assets is increasingly visible, supporting margin leverage and reducing concentration risk over time.
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Active Ingredients
AbbVie’s valuation is best framed against a focused group of large-cap U.S. biopharma peers that share similar scale, patent-cycle dynamics, and earnings composition. Merck provides the closest revenue and blockbuster-risk benchmark, with Keytruda concentration offering a clean parallel to ABBV’s post-Humira era. Amgen serves as the biologics and margin-discipline yardstick, combining high operating leverage, strong free cash flow, and dividend consistency within a similarly structured portfolio. Bristol Myers Squibb anchors the value side of the spectrum, navigating its own loss-of-exclusivity cycle while trading at a discounted multiple that highlights how the market prices patent transitions. Together, they define the competitive valuation band in which AbbVie now operates.
Overall healthcare momentum was broadly supportive over the past year. Still, AbbVie’s peer group displayed notable dispersion in stock performance, reflecting differences in growth visibility and investor sentiment. Merck’s pipeline-driven confidence upgrade and Amgen’s obesity optionality powered the strongest gains, while Bristol Myers lagged under patent erosion concerns. AbbVie’s roughly 12.5% advance places it in the middle of the cohort, reflecting steady execution without meaningful multiple expansion so far. In 2025, the stock underwent significant de-risking, exceeding expectations in managing the Humira loss of exclusivity and scaling its immunology growth drivers. With 2026 guidance pointing to a sharp earnings acceleration, continued execution could translate that inflection into a rerating catalyst.
Meanwhile, ABBV remains moderately valued relative to its fundamentals and forward earnings expectations. The stock trades at roughly 15-16x forward non-GAAP earnings and about 14x forward EV/EBITDA – below Merck’s premium multiple and slightly under Amgen, while appropriately above Bristol Myers’ distressed valuation. That positioning looks balanced given AbbVie’s profile. EBITDA margins near 48% and a levered free cash flow margin close to 30% rank at the top of the peer group, while 2026 guidance implies robust EPS expansion – faster than both MRK and AMGN on current estimates. The forward PEG ratio below 1.0 further supports the case that earnings acceleration is not priced in yet. ABBV is not a deep value opportunity, but it does not require heroic assumptions either. If execution on immunology, neuroscience, and margin expansion continues, the current valuation leaves room for multiple expansion toward the higher end of the peer band.
AbbVie follows a shareholder-focused capital allocation framework built around dividend growth, disciplined M&A, selective share repurchases, and gradual debt reduction. Dividends are clearly the primary return mechanism. Since its 2013 spin-off, AbbVie has increased its dividend by approximately 310%, meaning the payout has more than quadrupled over that period. The current yield of roughly 2.9% stands well above the broader healthcare average, while moderate payout ratios and strong free cash flow provide capacity for continued increases.
Share repurchases remain secondary to dividends and strategic investment. Since inception, AbbVie has reduced its share count by approximately 5-8%, though recent buybacks have been measured as capital has been directed toward acquisitions, innovation, and balance sheet optimization. In 2025, the company repurchased about $606 million of stock and ended the year with roughly $2.9 billion remaining under authorization.
If management delivers on its 2026 growth targets while maintaining capital discipline, AbbVie’s profile shifts from de-risked recovery to accelerating compounder. In that scenario, valuation expansion would reflect improved earnings durability rather than speculative optimism.
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Investing Takeaway
AbbVie has moved beyond the narrative of replacement and into one of expansion. Immunology is scaling from a position of strength, neuroscience is emerging as a durable second engine, oncology is rebuilding on combination depth, and obesity signals a longer-cycle platform in formation. The company is no longer defending a cliff – it is layering growth on top of an already restructured base. Execution over the past year has reduced uncertainty. The next phase is about operating leverage, pipeline delivery, and translating guidance into sustained earnings acceleration. With strong cash generation, disciplined capital allocation, and multiple growth vectors across therapeutic areas, AbbVie offers a blend of durability and upside. If management continues to execute as it has, the current setup favors a constructive, long-term view.
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New Sell: Leidos Holdings (LDOS)
We are exiting our position in Leidos Holdings. This is not a reflection of deteriorating fundamentals or a loss of respect for the business. LDOS remains a profitable, well-managed defense and technology contractor with durable positions across defense, intelligence, health, and energy infrastructure. The issue is that the growth profile that initially attracted us has faded, and the near-term setup no longer justifies keeping capital tied up.
When we initiated the position in May 2025, LDOS was delivering accelerating EBITDA and margin expansion, with adjusted EPS growing close to 30% year-over-year. The story combined operating leverage, disciplined capital deployment, and visible demand across key government programs. Today, that picture looks far more muted.
Q4 2025 results were mixed. Adjusted EPS beat expectations, supported by margin expansion and disciplined cost control. Free cash flow generation in 2025 was strong, and backlog remained healthy. But revenue declined year-over-year, and would have shown near-zero growth even without the negative impact from the federal government shutdown. More importantly, the 2026 outlook lacks energy. Revenue guidance implies growth of up to 4%, with acceleration pushed into the back half of the year. Adjusted EBITDA margins are expected to normalize from peak levels, and free cash flow is projected to decline as capital expenditures rise sharply.
Meanwhile, capital intensity is increasing meaningfully. Capex is slated to increase threefold from prior annual levels as the company expands production capacity and upgrades classified facilities. At the same time, the planned acquisition of Entrust increases leverage. While the strategic rationale – expanding energy and utility engineering capabilities – is sound, the near-term effect is a more levered balance sheet and lower free cash flow flexibility.
Operationally, there are also pockets of softness. Analysts flagged slower activity in the Veterans Benefits Administration medical exam business, and contract renewals that must be rebid – potentially at lower pricing or reduced scope – remain an ongoing risk. Although defense and cyber demand remains solid, the blended growth outlook is simply not compelling. Post-earnings, multiple firms trimmed price targets, and the rating mix stands at just five Buy ratings versus six Holds – a reflection of lukewarm conviction rather than enthusiasm.
Valuation is not demanding. LDOS trades at a meaningful discount to industrial peers on forward multiples. But an inexpensive stock by itself is not a reason to hold, on the contrary: if the company surprises on growth or margin upside, there will likely be ample opportunity to re-enter. After all, history has shown that a 30-40% discount to industrial medians does not close overnight.
In a market rewarding visible acceleration and cleaner growth narratives, Leidos currently offers stability but limited upside catalyst. It remains a solid franchise, and we are open to revisiting the name if growth re-accelerates or the strategic investments begin to translate into clearer top-line momentum. For now, however, the risk-reward is simply not compelling enough to justify staying invested.
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Smart Investor’s Winners Club
The Winners Club represents stocks from the Smart Investor Portfolio that have risen at least 30% since their purchase dates.
Markets suffered turbulence, but our Club gained altitude, adding two members. Now, the Winners circle has reached 22 stocks: GE, AVGO, TSM, HWM, EME, APH, ANET, PH, IBKR, VRT, MTZ, GOOGL, ORCL, KEYS, ATI, ASX, RTX, STRL, BK, CSCO, JBL, and MS.
The first contender for the Club’s entry – or in this case, return – is now JPM with a gain of 21.54% since purchase. Will it rejoin the ranks, or will another stock outrun it to the finish line?
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