Thursday, January 10, 2013

Abbott Labs (ABT/ABBV) 2103 Review

Abbott Labs develops, manufactures and markets a diversified line of healthcare products including pharmaceuticals, diagnostic systems and tests, vascular and pediatric nutritional products.  ABT has grown profits and dividends between 9% over the last 10 years earning in excess of a 25% return on equity.  Expectations are for a continuation of this performance over the next five years.

On January 1, the company split into two entities, one containing the medical device and generic pharmaceutical business, the other the proprietary pharmaceuticals and R&D effort (AbbVie—ABBV).  Our main focus will be on the latter. Its primary components of future growth are:

(1) strong revenue increases from several major drugs including Humira, an anti-inflammatory whose sales are growing in excess of 20% a year, TriCor, a powerful triglyceride lowering agent and XIENCE V, a drug eluding stent which offers superior differentiating characteristics to those of its competitors,

(2) an aggressive acquisition program,

(3) a committed R&D program with several high potential drugs for the treatment of Crohn’s disease and psoriasis and has a significant clinical effort in immunology, oncology, neuroscience, pain management and infectious diseases.

 Negatives:

(1) pricing pressure from the EU as well as US healthcare reform,

(2) generic competition,

(3) potential pipeline and regulatory setbacks.

Abbott Labs is rated A++ by Value Line, its stock provides a 3.0% yield and debt is approximately 39% of its capitalization.

      Statistical Summary

                 Stock      Dividend         Payout      # Increases  
               Yield      Growth Rate     Ratio       Since 2003

ABT          3.0%          9%               39%             10
Ind Ave      3.4             7*                41               NA 

                Debt/                     EPS Down       Net        Value Line
              Equity         ROE      Since 2003      Margin       Rating

ABT         39%            30%            0               20%          A++
Ind Ave    32                18             NA             23            NA

*over half the companies in this industry don’t pay dividends.

     Chart

            Note: With the stock split, the chart of ABT now shows a $30+ drop in the stock---in other words it is meaningless.  In addition, the ABBV chart is only a few days old; so it also it provides no information value.

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