Is Abbott Laboratories Stock a Buy?

Source: http://www.flickr.com/photos/waywuwei/

With shares of Abbott Laboratories (NYSE:ABT) trading around $36, 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 health care 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 developing economies like India, China, Russia, and Brazil. With developing economies making up 40 percent of revenues for Abbott Laboratories, the company stands to see explosive profits in coming years from these countries. Look for Abbott Laboratories to provide the health care products desired and demanded by consumers and companies across the globe.

Abbott Laboratories is in a bit of trouble in China, where it is being asked to recall two infant formula products that a New Zealand cooperative say could have a bacteria causing botulism. Other companies have bought from the same cooperative and have been identified by the Chinese government as possessing products potentially contaminated with the bacteria, including Hangzhou Wahaha Group Ltd., Shanghai Tangjiu Co., and Dumex Baby Food Co.

T = Technicals on the Stock Chart are Mixed

Abbott Laboratories stock has been trading higher over the past several years. The stock is now consolidating near 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 between its key averages, which signals neutral price action in the near term.

ABT

Source: Thinkorswim

Taking a look at the implied volatility 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

19.59%

6%

4%

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

Put IV Skew

Call IV Skew

August Options

Flat

Average

September 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 minimal amount of call and put option contracts and are leaning neutral to bullish over the next two months.

E = Earnings are Decreasing 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 Q2

2013 Q1

2012 Q4

2012 Q3

Earnings Growth (Y-O-Y)

-72.22%

-56.41%

-35.62%

536.80%

Revenue Growth (Y-O-Y)

-44.47%

-43.13%

4.43%

-0.44%

Earnings Reaction

0.33%

2.41%

-0.27%

-4.28%

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

P = Average 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

15.12%

17.21%

18.27%

7.94%

15.03%

Abbott Laboratories has been an average relative performer, year-to-date.

Conclusion

Abbott Laboratories provides a variety of health care products to consumers living in countries around the world. The company may be in a little trouble, as two of its infant products overseas may contain traces of bacteria. The stock has been trending higher but is now digesting recent gains. Over the last four quarters, earnings and revenue figures have been declining, which has led to mixed feelings among investors in the company. Relative to its peers and sector, Abbott Laboratories has been an average year-to-date performer. WAIT AND SEE what Abbott Laboratories does this coming quarter.

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.

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