Abbott Has Healthy Product Portfolio

1/11/2010


  Recent Price
$54
  Dividend
$1.60
  Yield

3.0%

  P/E Ratio
16
  Shares (millions)
1,552
  Long-Term Debt as % of Capital
35%
  52-Week Price Range
$57.39 - $41.27

Abbott Laboratories ($54; ABT) has delivered double-digit sales growth in three of the last four years. The company offers a broad footprint, marketing products in 130 countries and collecting 54% of sales overseas. Yet the stock sells for a modest 16 times trailing earnings, 11% below the three-year average P/E ratio.

The biggest worry about Abbott is its heavy reliance on Humira, which treats rheumatoid arthritis, Crohn’s disease, and psoriasis. Humira accounts for 33% of Abbott’s pharmaceutical sales and 17% of total sales. For now, Humira remains one of Abbott’s fastest-growing products.

In the nine months ended September, Abbott posted growth of 2% in sales, or 8% in constant currency, and 13% in per-share profits. In 2010, Wall Street expects sales to jump 8% while earnings rise 12%. This outlook, coupled with Abbott’s diversification efforts, help earn the stock a Long-Term Buy rating.

Business breakdown

Pharmaceuticals (53% of revenue in the nine months ended September) represent Abbott’s biggest segment — and its weakest performer, with sales down 4% in the first nine months of 2009. One of the few bright spots was Humira, with revenue up 16% in the U.S. and 25% in other countries. Abbott seeks new uses for the drug and projects annual sales could reach $9 billion in 2012, versus roughly $5 billion in estimated 2009 sales.

Sales of nutritional products (18%), including infant formulas and adult nutritional supplements, climbed 7% in the nine months ended September. In that same span, revenue dipped 3% for the diagnostics division (12%), which services blood banks, hospitals, labs, and physician offices.

The vascular (9%) segment produces stents, catheters, and guidewires. Stents are wire-mesh tubes used to hold arteries open, and Abbott’s Xience is now the biggest-selling drug-eluting stent in the world. It recently gained approval in both Canada and China and could be launched in Japan in 2010. The vascular unit’s revenue has jumped 25% in the nine months ended September.

Abbott also sells diabetes products, such as hand-held glucose monitors, data-management systems, insulin pumps, and syringes.

Acquisitions

Abbott spent more than $7.6 billion in cash on acquisitions in 2009, and milestone payments could push that figure higher. Few were bargains, but Abbott has historically managed to fold quality businesses into operations efficiently.

Headlining recent acquisitions is the $6.6 billion deal for Solvay Pharmaceuticals, which gave Abbott control of cholesterol drugs Tricor and Trilipix. The deal also boosts Abbott’s vaccine pipeline with two phase III candidates and strengthens its presence in emerging markets.

Legal issue

One concern overhanging the stock is a court ruling that ordered Abbott to pay $1.67 billion for allegedly violating patents held by Johnson & Johnson ($64; JNJ). However, Abbott held $8.69 billion in cash and short-term investments at the end of September and can comfortably cover the cost if its planned legal appeal fails. An annual report for Abbott Laboratories can be obtained at 100 Abbott Park Road, Abbott Park, IL 60064; (847) 937-6100; www.abbott.com.

ABBOTT LABORATORIES
Quarter

    Per-Share
     Earnings*

Sales
Change

      Quarterly
      Price Range

P/E Ratio
Range

Sep '09 $0.92 vs. $0.79 + 4% $54.97 -

$48.41

15 - 13
Jun '09 0.89 vs. 0.85 + 2% 49.69 - 43.45 15 - 13
Mar '09 0.73 vs. 0.60 - 1% 48.37 - 41.27 18 - 14
Dec '08 0.89 vs.

0.93

+ 10% 57.39 - 44.10 19 - 14
           
Year
(Dec.)

Sales
 (Bil.)

Per-Share
Earnings*
Per-Share
Dividend

52-Week Price Range

P/E Ratio
Range

2008 $29.53 $3.03 $1.44 $61.09
-
$45.75 20 - 15
2007 $25.91 $2.84 $1.30 59.50
-
48.75 21 - 17
2006 $22.48 $2.52 $1.18 49.87
-
39.18 20 - 16
2005 $22.29 $2.50 $1.10 50.00
-
37.50 20 - 15
             
————————————————— Quadrix Scores † —————————————————
Overall Momen-
tum
Value Quality Financial
Strength
Earnings
Estimates
Performance
90 82 79 85 77 49 36

   * Earnings exclude special items.
   † Quadrix® scores are percentile ranks, with 100 the best.


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