5
Abbott Laboratories (ABT)
- Equity
- US
- Healthcare
RISK
RETURN
Key risk factors
Negligible price volatility
Strong trading liquidity
Strong & resilient to price shocks
Key return factors
Strong margins and returns
Overvalued vs peers
Decent dividends
Company profileAbbott Laboratories, together with its subsidiaries, discovers, develops, manufactures, and sells health care products worldwide. It operates in four segments: Established Pharmaceutical Products, Diagnostic Products, Nutritional Products, and Medical Devices. The Established Pharmaceutical Products segment provides generic pharmaceuticals for the treatment of pancreatic exocrine insufficiency, irritable bowel syndrome or biliary spasm, intrahepatic cholestasis or depressive symptoms, gynecological disorder, hormone replacement therapy, dyslipidemia, hypertension, hypothyroidism, Ménière's disease and vestibular vertigo, pain, fever, inflammation, and migraine, as well as provides anti-infective clarithromycin, influenza vaccine, and products to regulate physiological rhythm of the colon. The Diagnostic Products segment offers laboratory systems in the areas of immunoassay, clinical chemistry, hematology, and transfusion; molecular diagnostics systems that automate the extraction, purification, and preparation of DNA and RNA from patient samples, as well as detect and measure infectious agents; point of care systems; cartridges for testing blood; rapid diagnostics lateral flow testing products; molecular point-of-care testing for HIV, SARS-CoV-2, influenza A and B, RSV, and strep A; cardiometabolic test systems; drug and alcohol test, and remote patient monitoring and consumer self-test systems; and informatics and automation solutions for use in laboratories. The Nutritional Products segment provides pediatric and adult nutritional products. The Medical Devices segment offers rhythm management, electrophysiology, heart failure, vascular, and structural heart devices for the treatment of cardiovascular diseases; and diabetes care products, as well as neuromodulation devices for the management of chronic pain and movement disorders. Abbott Laboratories was founded in 1888 and is based in North Chicago, Illinois.
Valuation: Overvalued
Multiple
TTM
NTM
P/E
32.30
30.60
PEG
4.90
-
P/B
4.70
4.10
P/S
4.50
4.40
P/FCF
37.00
27.00
EV/EBITDA
20.80
19.30
Based on key historical and expected multiples, the stock is overvalued relative to its peers. In particular, the stock is reasonably priced on P/E, 'expensive' on EV/EBITDA, and overvalued on P/FCF.
Performance: Mixed
The stock's performance has been mixed in the past six months, with growth following a decline. There is no clear price trend compared to its global peers from the same sector and industry (as shown above). The stock has outperformed this peer group by 1ppts over past six months and grown 5ppts slower in the past month. This is largely true for peers from the same country and sector. With respect to the stock's valuation against its peers, its overall price performance is neutral.
Analyst view: Somewhat favourable
The average target price is 125 and suggests 19% upside potential. Usually, this means a BUY recommendation among investment firms, or a recommendation to increase one's position in this instrument in the next 12 months. The most optimistic analyst has a target price of 143.0. This translates into 36% upside potential in the best case. On the other hand, the most pessimistic analyst has a target price of 107.0. This suggests 2% upside potential. Even the most pessimistic analyst believes there will be stock growth.
Profitability: Strong
RoE
Abbott Laboratories reported a return on equity (RoE) of 14.5% in the last 12 months, down from 19.1% in FY22. The market consensus projects an RoE of 14.8% in FY24, this time above its peers.
RoA
Another important profitability metric, return on assets (RoA), amounted to 7.7% in the last 12 months, a decrease from 9.3% in FY22. The market analysts predict that RoA will be 8.0% in FY24, again stronger than its peers.
RoCE
In the last 12 months, the return on capital employed (RoCE) declined to 9.6%, below the peers. The consensus estimate for FY24 for RoCE is 12.1%, again behind the peers.
Net margin
EBITDA margin
Historically, ABT has reported strong net margins compared to its global peers. Specifically, in the last 12 months, this metric equalled 14.0%, down from 15.9% in FY22. The company has reported good EBITDA margins compared to its global peers in recent years. EBITDA margin amounted to 22.8% in the last 12 months, a decline from 24.5% in FY22.
RoIC / WACC = 1.7(good value creation)
The ratio of return on invested capital (RoIC) to the weighted average cost of capital (WACC) has been 1.7 in the past several years. This ratio implies a good shareholder value creation. Growth: Poor
Revenue
EBITDA
EPS
Free cash flow
ABT reported revenue of USD 40 326mn in the last 12 months, up 1% from FY23. At the same time, the dynamics of cash flow, as measured by free cash flow (FCF), were drastically different. EPS fell 1% from FY23 to USD 3.24. Market expects EPS to reach USD 4.63 in FY24.Revenue has been growing very slowly over the past several years (middle negative), while slow revenue growth and a stable cost base have translated into weak EBITDA growth (negative-to-neutral). Poor revenue growth and insufficient cost control translated into very slow bottom-line growth in recent years (negative-to-neutral). FCF has fallen rapidly, far faster than EBITDA. We emphasize the highly volatile dynamics of FCF and EPS.
Dividends: Decent
Dividend paid
Dividend yield
The company has a track record of regular dividend payments. It has paid dividends in each of the past ten years. Dividend per share (DPS) has grown yearly, and there is an evident trend. In the past 12 months, the dividend yield has been moderate and on par with its peers. On average, the company pays dividends quarterly, which may appeal to investors valuing a regular income stream.
Default risk: Limited
The risk of default is minimal. We note robust profitability, solid return on capital, strong debt servicing capacity, adequate interest coverage, solid cash flow generation, and an favourable capital structure, among the positive credit factors. Among the negative credit factors, we point to slow historical revenue growth.
Volatility: Negligible
In normal market circumstances, ABT is not volatile. Put differently, without outstanding market volatility or shocking company news, the stock's price will stay within a narrow range. The stock's losses on its worst days (less than 1-5% of the time) will range from very low to negligible.
Stress-test: Negligible
In highly turbulent market conditions, ABT is not volatile. In other words, the stock will fall far less than the index in times of extreme market volatility or shocking company news. Standalone, the worst-day losses (less than 1% of the time) will likely be very low.
Selling difficulty: Very low
ABT boasts very high trading liquidity. The average private investor can sell his common position in the stock immediately. Liquidity is usually very stable and remains mildly favourable on the days with the lowest activity. The trading volume mostly stays the same even under highly turbulent market conditions.
Country risk: Very low
The institutional, legal, and compliance risks associated with the company's country are minimal. In combination with stringent business standards, shareholder rights are very highly protected.
Other risks: Negligible
No other major risks have been identified.