Is Abbott a Good Defensive Play?

With shares of Abbott Laboratories (NYSE:ABT) trading at around $36.89, 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:

C = Catalyst for the Stock’s Movement

Abbott was given an OUTPERFORM rating here on April 2. It has had a good run since, but have circumstances changed?

Abbott operates in four segments: Nutritionals, Medical Devices, Diagnostics, and Established Pharmaceuticals. The biggest selling point for Abbott is an aging population – not just in the United States, but in emerging markets as well. But will that be enough in a difficult economic environment? Let’s take a look at some positives and negatives:

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Positives:

  • Highly innovative company
  • Analysts like the stock: 8 Buy, 14 Hold, 1 Sell
  • Established Pharmaceutical sales increased 4.4 percent y-o-y in emerging markets
  • Management expects Established Pharmaceutical sales to grow in double-digits in 2013
  • Nutritional sales increased 8.7 percent y-o-y
  • Diagnostic sales increased 4.4 percent y-o-y
  • Stock should be resilient in weak markets
  • 1.50 percent dividend yield (lower than peers)
  • FDA approval for TECNIS Toric 1-Piece Intraocular Lens

Negatives:

  • Foreign exchange rates hurting bottom line
  • Weak sales in Europe and Japan
  • Medical Device sales declined 4.6 percent y-o-y

The chart below compares fundamentals for Abbott, Medtronic (NYSE:MDT), and CryoLife Inc. (NYSE:CRY). Abbott has a market cap of $58.20 billion, Medtronic has a market cap of $47.65 billion, and CryoLife has a market cap of $158.85 million.

ABT

MDT

CRY

Trailing   P/E

11.29

13.90

20.42

Forward   P/E

16.47

12.21

14.82

Profit   Margin

13.17%

21.24%

6.03%

ROE

N/A

19.35%

6.37%

Operating   Cash Flow

N/A

 $4.74 Billion

  $18.99 Million

Dividend   Yield

1.50%

2.20%

1.70%

Short   Position

0.90%

1.00%

1.90%

 

Let’s take a look at some more important numbers prior to forming an opinion on this stock.

E = Equity to Debt Ratio Is Normal

The debt-to-equity ratio for Abbott is weaker than the industry average, but it still qualifies as normal.

Debt-To-Equity

Cash

Long-Term Debt

ABT

0.76

$15.17 Billion

$20.48 Billion

MDT

0.64

$2.46 Billion

$11.49 Billion

CRY

0.00

$13.01 Million

$0

 

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T = Technicals Are Strong   

Abbott hasn’t been around long on its own, but the performance year-to-date has been good. In a normal market, it would be considered a great performance. In the current market environment, it’s seen as ho-hum.

1 Month

Year-To-Date

1 Year

3 Year

ABT

4.84%

18.65%

28.22%

80.74%

MDT

-0.11%

14.35%

25.12%

15.14%

CRY

-5.82%

-8.77%

8.35%

N/A

 

At $36.89, Abbott is trading above all its averages.

50-Day   SMA

35.35

100-Day   SMA

34.03

200-Day   SMA

32.93

 

E = Earnings Have Been Steady               

Earnings have been steady on an annual basis, but it’s a different company now. Keep that in mind when looking at the numbers below.

2008

2009

2010

2011

2012

Revenue   ($)in   billions

29.53

30.76

35.17

38.85

39.87

Diluted   EPS ($)

3.12

3.69

2.96

3.01

3.72

 

When we look at the previous quarter on a year-over-year basis, we see a decline in revenue and earnings, but these numbers as a whole don’t reflect the current situation. Once again, it’s not the same company after the spinoff.

3/2012

6/2012

9/2012

12/2012

3/2013

Revenue   ($)in   billions

9.46

9.81

9.77

10.84

5.38

Diluted   EPS ($)

0.78

1.08

1.21

0.66

0.34

 

Now let’s take a look at the next page for the Trends and Conclusion. Is this stock an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY?

T = Trends Support the Industry

With baby boomers retiring in droves, the industry stands to benefit. Income-oriented stocks have also been hot. This doesn’t mean the industry is bulletproof by any means, but it should be more resilient than most industries when the stock market eventually comes back down to reality.

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Conclusion

Abbott is an innovative, diversified, and well-managed company with a decent dividend. That combination is difficult to find.

Abbot is a long-term OUTPERFORM.

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Disclosure: All content posted represents my opinion and views and should never be considered professional advice. You should do your own research and consult with a professional financial advisor before making any investment decisions. I do not have a position in this stock. I am currently short technology, financials, the Russell 2000, and the euro.

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