Can Abbott Laboratories Maintain the Lead?

With shares of Abbott Laboratories (NYSE:ABT) trading around $37, is ABT an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Abbott Laboratories is engaged in the discovery, development, manufacture, and sale of a portfolio of science-based healthcare products. Abbott operates in four business segments: diagnostics, medical devices, nutritionals and generic pharmaceuticals. Geographically, 30 percent of its revenue is generated in the United States; 30 percent in Western Europe, Canada, Japan, and Australia, and 40 percent in the economies, including India, China, Russia, and Brazil. With developing economies comprising 40 percent of revenues for Abbott Laboratories, the company stands to see explosive profits in coming years from these growing countries. Look for Abbott Laboratories to provide the healthcare products desired and demanded by consumers and companies across the globe.

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T = Technicals on the Stock Chart are Strong

Abbott Laboratories stock broke out above a multi-year range last year and has not looked back. The stock is currently on a strong run that has taken it to all-time highs. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Abbott Laboratories is trading above its rising key averages which signal neutral to bullish price action in the near-term.

ABT

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Abbott Laboratories options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Abbott Laboratories Options

20.93%

80%

79%

What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

June Options

Flat

Average

July Options

Flat

Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Mixed Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Abbott Laboratories’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Abbott Laboratories look like, and more importantly, how did the markets like these numbers?

2013 Q1

2012 Q4

2012 Q3

2012 Q2

Earnings Growth (Y-O-Y)

-56.41%

-35.62%

536.8%

-12.20%

Revenue Growth (Y-O-Y)

-43.13%

4.43%

-0.44%

1.98%

Earnings Reaction

2.41%

-0.27%

-4.28%

-0.79%

Abbott Laboratories has seen mostly decreasing earnings and and mixed revenue figures over the last four quarters. From these numbers, the markets have had mixed feelings about Abbott Laboratories’s recent earnings announcements.

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P = Excellent Relative Performance Versus Peers and Sector

How has Abbott Laboratories stock done relative to its peers, Pfizer (NYSE:PFE), Merck (NYSE:MRK), Eli Lilly (NYSE:LLY), and sector?

Abbott Laboratories

Pfizer

Merck

Eli Lilly

Sector

Year-to-Date Return

20.42%

12.96%

15.17%

9.91%

10.51%

Abbott Laboratories has been a relative performance leader, year-to-date.

Conclusion

Abbott Laboratories provides essential and non-essential healthcare products to consumers and growing countries around the world. The stock is currently on a powerful run that has taken it to all-time high prices. Over the last four quarters, Abbott Laboratories has seen decreasing earnings and mixed revenue figures that have produced mixed feelings among investors. Relative to its peers and sector, Abbott Laboratories has been a year-to-date performance leader. Look for Abbott Laboratories to continue to OUTPERFORM.

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