The Long Case for Abbott Laboratories

Abbott Laboratories (ABT) is a good company for dividend-seekers and long-term-growth investors, currently trading at a decent valuation.

Company/Stock Type

Large, mature growth company. Business = Diversified healthcare, including drugs, medical devices, and nutritional products.

Company Story and Quality

Abbott manufactures and markets drugs, vascular products, diagnostics, and nutritional products worldwide. Its workhorse product is auto-immune agent Humira, for rheumatoid arthritis. Humira is a blockbuster whose sales have been growing at 50% annually, on pace for more than $4 B in 2008. It brings in 15% of Abbott’s total revenue.

Other products include blood-glucose monitoring kits, stents (including the newly approved drug-eluting Xience V), nutritional liquids, and diagnostic devices. Abbott has compiled a good record with acquisitions, which were the source of both Humira and Xience. Abbott’s non-drug businesses help shield it from the effects of periodic loss of patents on its branded drugs. The company is riding Healthcare and Globalization megatrends.

Abbott posted solid Q2 2008 results, with double-digit growth across all divisions (see conference call transcript). Future earnings growth is estimated at 12% annually, an improvement over its past three-year record.

On my demanding Easy-Rate™ scoring system, Abbott scores “Good” for company quality. It has generated positive returns in four of the past five years, including +5% so far in 2008. It has raised dividends for 36 years, including an annualized 7% over the past three years and 11% this year. Its current yield is 2.4%.

Valuation

At a recent price of $57.31, I rate Abbott “Fair+” in valuation, meaning it is slightly undervalued. Its P/E ratio is a little high at 24, but its Forward P/E and P/CF (price to cashflow) ratios are both attractive at 16 and 17, respectively.

Investment Thesis and Conclusion

Abbott appears to be a very solid classic growth company with an attractive long-term outlook. There are no major red flags in its financials, and its valuation is decent if not in “back up the truck” territory. It is an excellent dividend buy, with a good current yield and one of the best records in dividend increases.

Disclosure: Author holds a long position in ABT

Comments

[CrossProfit]

Not sure how much more near term upside ABT has.
See: www.crossprofit.com/vi...

Would wait for annual reassessment in September/October when their should be more visibility for the upcoming twelve months.

CrossProfit
Disclosure: No conflicts.

[CrossProfit]

correction: 'when THERE should be"...where's the coffee!

[etchdude]

Remember a time when "analysts" didn't dictate what corporations should make?? Sorry to offend you, but the analysts are ruining it for the common people, creating a corporate greed structure that says "We didn't make ENOUGH money"... Thank you for screwing things up...

[BullishBankers]

Check out www.bullishbankers.com.../ for more information on ABT, I thought it was great

[User 232942]

Check out an interesting article on ABT here www.bullishbankers.com.../