Abbott Labs Steady As They Come

9/12/2011


  Recent Price
$51
  Dividend
$1.92
  Yield
3.7%
  P/E Ratio
12
  Shares (millions)
1,566
  Long-Term Debt as % of Capital
32%
  52-Week Price Range
$54.24 - $45.07

From 2005 through 2010, Abbott Laboratories ($51; ABT) grew sales at an annualized rate of at 12% while the dividend rose at an 11% clip.

Abbott maintained its steady pace in the first half of 2011, with per-share earnings up 12% on 13% revenue growth. Free cash flow advanced 13% to $2.32 billion, supporting continued dividend growth, most recently a 9% hike in February. Yielding 3.7%, Abbott is a Long-Term Buy.

Business breakdown

Abbott's pharmaceuticals business (57% of revenue in the first half of 2011) depends heavily on blockbuster drug Humira (20% of company revenue). First-half sales of Humira, used to treat rheumatoid arthritis, Crohn's disease, and psoriasis, rose 22%. Abbott continues to find new indications for Humira, which is still gaining share in its existing markets. 

Investors have penalized the stock for Abbott's heavy reliance on Humira. But the company gets plenty of help from its other product lines. Nutritionals (16%) grew revenue 7% in the six months ended June despite the recall of a powdered infant formula. Production has since been restarted. Diagnostics (11%) — a unit that includes blood screening and HIV testing — grew sales 8%. Revenue at the medical products and devices segment (17%) rose 8%. Abbott's extensive portfolio of coronary stents could be a long-term growth driver, though U.S. sales slipped 11% in the six-month period, offset by a 27% gain in international markets.

Growth in Western markets has slowed, and austerity measures in Europe could exacerbate the problem. But international sales surged 18% in the six months ended June, helped by acquisitions, with emerging markets generating even stronger growth. Abbott is believed to have the largest share of India's drug market.

In raising its full-year 2011 profit guidance in August, Abbott implied the second half of 2011 will be stronger than expected. Analysts' profit estimates have risen in response, now projecting 11% growth for both the September and December quarters.

Solid future

Looming patent cliffs threaten the revenue streams of many U.S. pharmaceutical companies, including Abbott. Unlike its peers, Abbott's time is still well into the future, with the company's largest-selling drugs not slated to face generic competition until 2016. Abbott's robust pipeline and efforts to penetrate emerging markets should soften the blow.

Over the next five years, Abbott is expected to grow profits at a 9% annual pace, more than double the average rate for the six largest
U.S. pharmaceutical companies. Despite Abbott's superior growth potential, at 11 times the projected 2011 profit estimate, Abbott trades at 1.3 times the long-term growth estimate, versus the median of 2.1 for the largest U.S. drugmakers.

The stock looks even cheaper relative to its own history. Abbott shares trade at discounts of more than 24% to the five-year averages for price/earnings, price/sales, price/cash flow, and enterprise value. 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
Jun '11
1.12
vs.
1.01
+ 9%
54.24
-
49.05
13 - 11
Mar '11
0.91
vs.
0.81
+ 17%
49.45
-
45.07
12 - 11
Dec '10
1.30
vs.
1.18
+ 13%
53.75
-
46.03
13 - 11
Sep '10
1.05
vs.
0.92
+ 12%
52.86
-
44.59
13 - 11
Year
(Dec.)
Sales
 ($Bil.)
Per-Share
Earnings*
($)
Per-Share
Dividend
($)
52-Week
Price Range
($)
P/E Ratio
Range
2010
35.17
4.17
1.76
56.79
-
44.59
14 - 11
2009
30.76
3.72
1.60
57.39
-
41.27
15 - 11
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
 
Quadrix Scores †
Overall
Momen-
tum
Value
Quality
Financial
Strength
Earnings
Estimates
Performance
94
67
73
81
73
77
82

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


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