Is the New Abbot a Winner?

With shares of Abbott Laboratories (NYSE:ABT) trading at around $35.31, 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

The spinoff of AbbVie Inc. (ABBV) has left many investors unsure about Abbott’s future potential. Abbot still operates in four segments: Diagnostic Products, Vascular Products. Nutritional Products, and Established Pharmaceutical Products. Abbott Laboratories also offers blood glucose monitoring meters, test strips, and data management software and accessories for people with diabetes; and medical devices for the eye, including cataract surgery, LASIK surgery, contact lens care products, and dry eye products.

Abbott has a lot going for it at the moment, including:

  • Strong margins
  • Good cash flow
  • Exposure to the increasingly popular generics market
  • Diversification of sales across the world
  • Increase in cash position
  • 357 consecutive quarterly dividends
  • Launching Xience Xpedition drug-eluting stent this year
  • PLEX-ID System has potential to reduce antibiotic prescriptions
  • An FY2013 EPS expectation of $1.98 to $2.04 (remember, this is post-spinoff)
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The chart below will compare fundamentals for Abbott, Eli Lilly and Company (NYSE:LLY) and Johnson & Johnson (NYSE:JNJ). Abbott and Eli Lilly are similar in size; Johnson & Johnson is a much larger company. Abbott has a market cap of $55.29 billion, Eli Lilly has a market cap of $61.89 billion, and Johnson & Johnson has a market cap of $228.57 billion.

ABT

LLY

JNJ

Trailing   P/E

9.47

15.47

21.19

Forward   P/E

15.59

20.22

14.20

Profit   Margin

14.95%

18.09%

16.15%

ROE

23.23%

28.89%

17.25%

Operating   Cash Flow

$9.31 Billion

$5.30 Billion

 $15.40 Billion

Dividend   Yield

1.60%

3.50%

3.00%

Short   Position

1.10%

N/A

3.60%

 

Abbott currently has a good valuation and a 1.60 percent yield. 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 slightly weaker than the industry average of 0.40. Though it qualifies as normal, it’s not as strong as the debt-to-equity ratios for Eli Lilly and Johnson & Johnson.

Debt-To-Equity

Cash

Long-Term Debt

ABT

0.76

$15.17 Billion

$20.48 Billion

LLY

0.37

$5.68 Billion

$5.53 Billion

JNJ

0.25

$21.09 Billion

$16.16 Million

 

T = Technicals Are Strong

The chart below can be deceiving in regards to Abbott. Keep in mind that the AbbVie spinoff took place in January of this year. Therefore, the year-to-date and one-month performances are the most important. The stock has performed well year-to-date.

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1 Month

Year-To-Date

1 Year

3 Year

ABT

5.06%

13.10%

26.00%

69.39%

LLY

3.34%

15.84%

46.69%

81.90%

JNJ

6.83%

17.83%

28.72%

38.67%

 

At $35.31, Abbott is trading above all its averages.

50-Day   SMA

34.01

100-Day   SMA

32.72

200-Day   SMA

32.23

 

E = Earnings Are?           

We don’t know what the revenue and earnings picture looks like after the spinoff. However, based on the company’s expectations, they’re likely to be good.

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 last quarter on a year-over-year basis, we see an increase in revenue and a decline in earnings, but these numbers are still based on the old Abbott.

12/2011

3/2012

6/2012

9/2012

12/2012

Revenue   ($)in   millions

10.38

9.46

9.81

9.77

10.84

Diluted   EPS ($)

1.04

0.78

1.08

1.21

0.65

 

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

There’s strong potential in every segment in which Abbott operates. Generics is often overlooked, and due to recent changes in healthcare, there is enormous potential in generics.

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Conclusion

Despite stock appreciation since the spinoff, there hasn’t been much optimism surrounding Abbott. This is likely due to investors’ confusion or lack of clarity on the Abbott situation going forward. Abbott is a well-run company with good long-term potential, and it’s recession-resistant.

Abbott is an OUTPERFORM.

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