Abbott Laboratories Stock Profile
I have not profiled a healthcare company on the site recently (Glaukos Corporation may have been the first and only one to date) so this week, we are examining Abbott Laboratories (Abbott). Abbott is a healthcare technology company with a wide stable of brands and products. One of its leading breakthrough products is the FreeStyle Libre. This product, a blood glucose monitoring system, consists of wearing a small sensor on the back of the upper arm thus eliminating the need for routine finger sticks. As someone with a diabetic in their immediate family, I can definitely see the appeal of such a product. The hassle not to mention the continuous read out feature would be life-changing for diabetics. You can link the monitor to your smartphone for real time data. Abbott is also at the forefront in technology use for cardiac issues such as abnormal heart rhythms. Also, for many parents, Abbott’s brand of Pedialyte, PediaSure and Similac will be familiar from the early years of parenthood. These products are the tip of the iceberg. Abbott has over 1,500 products in its portfolio and more than 400 are currently in development at 31 different manufacturing sites and 12 development sites.
· As stated many times on this site, I, nor ZSM Creative Inc. operating as The Capital Pink, are financial advisors and have no financial accreditations. I am applying some basic evaluation tools to this stock along with some commentary, but this should only serve as a starter for your further research. The information below is only current to the day this post was written which may or may not be the same day as this post was published so please update the ratios and numbers to the current day before relying on them as they may have significantly changed (see How Do I Evaluate a Stock? (Part One) for information on where to find the ratios and numbers online). Please read my Legal Disclaimer. Also, I do not own Abbott stock and am not affiliated with them in any manner.
What is Abbott?
Abbott is a 130-year old, large cap healthcare company with four reportable business segments: established pharmaceutical products, nutritional products, diagnostic products and cardiovascular and neuromodulation products. Within each of those segments, Abbott provides a wide variety of products and healthcare tools for both consumers and healthcare professionals. Some of its cutting-edge products include:
· FreeStyle Libre– glucose monitoring system discussed above (48% projected increase in number of people living with diabetes by 2045);
· Pacemakers, cardiac mapping system and other tools for irregular heart rhythms (more than 14 million Americans have some form of cardiac arrhythmia);
· Heart Failure portfolio to manage heart failure (46% projected increase in heart failure in the US by 2030);
· Technology for structural-heart diseases (heart valves and holes in the heart);
· Technology to treat chronic pain and movement disorders, a new area of expertise, may assist with movement disorders such as Parkinson’s as well as non-opiod pain monitoring; and
· Inclusion of HMO’s in baby formula which is naturally found in breastmilk but can now be found in Abbott’s Similac.
Physician and druggist Dr. Wallace C. Abbott founded the company in 1888. It is considered among the founders of of the modern “pharmacy” or "pharmaceutical" and has continually expanded into new scientific and geographic areas in the healthcare space.
Abbott had a very positive year in 2017. Its stock grew almost 50% and had its best performance in 20 years. Combined with the dividends the company pays, it had a total shareholder return of 52% over the year. Abbott has paid rising dividends for 46 years in a row and is a member of the S&P Dividend Aristocrats Index. It has a record of 90+ years of consecutive quarterly dividends paid! It has also been honored for its work with sustainability. In 2017, it was named to the Dow Jones Sustainability Index for the 13thyear in a row. 2017 also saw Abbott make two acquisitions – St. Jude Medical, a cardiac care company and Alere Inc., a rapid-testing technology company. Having said that, as is discussed at the end of this post, its revenue has come off significantly since highs in the 2008-2010 timeframe so that bears some consideration as to why that is the case.
What is Abbott stock doing?
As at May 24, 2018, the numbers from our basic stock evaluation tools are as follows:
Share price: $62.44 USD
One share of Abbott would cost $62.44. The price over the past 52 weeks has ranged from $43.44 to $64.60. So, it is trading close to the 52 week high.
Price to Earnings (P/E): 23.52
Recall this is the stock price divided by the earnings per share. If the P/E is high, you should expect to get some growth for having paid a bit more for the stock however, it could indicate the stock is overvalued. The Index P/E is 20.42 so Abbott is close to the index. It is helpful to compare the P/E with other competitors but unfortunately, most online sites no longer off that information free of charge.
Dividend Yield: 1.76%
Dividend paying stocks are something many investors look to buy as they are like an interest rate on your shares. Dividend payouts are discretionary. Dividend yield represents the amount the company pays out in dividends relative to its share price. While a higher dividend yield is usually more desirable, you still need to consider the health of the underlying company before making a generalization either way. Recall above that Abbott has paid a rising dividend for the last 46 years so it has an excellent track record for paying dividends.
Earnings per Share (EPS): 0.26 TTM
This figure will tell you a great deal about the growth of the company. It takes what the company earns and divides it by the number of shares outstanding. It is essentially the profit allocated to each share of the company. The bigger the number the better because the more the company earns, the more attractive it is to investors. EPS that is increasing every quarter shows earnings momentum and shows growth potential. Abbott’s EPS has moved up and down over the past 5 years with it down from 0.94 in 2016. This is a fairly small EPS figure compared to other stocks we have profiled. It also has not been growing much so this would merit further research to determine why this growth has stalled as by all accounts it appears to be in a growth industry.
Revenue: $28.45 Billion TTM
Increasing revenue is a good sign that the company is growing. Abbott has had steady revenue growth over the past five years at 7.53% although certainly is not at the height it was 10 years ago.
Return on Equity (ROE): 1.52% TTM
ROE tells you what sort of return the company is getting on the shareholders money. An increasing ROE is a good sign. Abbott’s ROE has actually gone down and bounced around. It went down substantially from 2015 (20.70%) to 2016 (6.71%) and then even lower in 2017 to (1.34%). Further research would need to be conducted to determine the cause of this large drop.
Market Capitalization: $109.5041 Billion
Recall that small cap stocks usually have the most room for growth as opposed to large, established, stable large cap companies and medium fall somewhere in the middle. Abbott would be considered a large cap stock and interestingly, is the world’s 9th largest independent biotech company measured by market cap.
Net Profit Margin: 1.67% (TTM)
This ratio tells us what profit is left over after the company pays its expenses for the year. The more money it keeps, the better. High net profit margins mean that a company is good at keeping profit after expenses are paid, which may mean they are adept at keeping their expenses down. It is a good idea to compare these over an industry to see what companies are good at operating and maintaining a high net profit margin. Abbott’s is not overly high compared to many other companies we have analyzed.
Free Cash Flow per Share: 2.37
Recall that this number is the cash flow through the business divided by the number of shares outstanding. It represents the net cash a company can produce per share and many investors consider this a better indicator of a company’s health than the more popular, earnings per share ratio because it is more difficult to manipulate cash flow numbers than it is earnings numbers. A higher value usually indicates the company is in a healthier position. It shows the cash that the company actually holds that could be distributed out to shareholders without impacting the continued development of the company.
This ratio should be considered along with the EPS figure for a better picture of the company’s health as there should not be a wide discrepancy between the two figures. If there are large variances between those numbers, you may want to consider if there were large, non-recurring one-time items that account for the large variance. It is also wise to look at a company’s cash flow picture in the long term as that should take into account one-time, large capital expenditures (money spent by a company to buy or maintain an asset like land, buildings or equipment, i.e. “fixed assets”) that required large amounts of cash. A low free cash flow per share could also mean the company is earning less profit.
Price to Sales (P/S): 3.82
This ratio compares the total market value of the company with its sales revenues. There is not a great deal of manipulation a company can do with its sales data, so this can be a good indicator of how well the company is doing. Recall that a lower ratio relative to its peers in the industry can indicate a potentially good investment opportunity. Morningstar indicates the index is 2.07 and unfortunately, we do not have the comparison data.
Price to Book (P/B): 3.45
This compares the stock price with how much the stock would be worth if the company was liquidated or sold off. It is the value of the stock in comparison to the underlying assets of the company. Thus, a low P/B relative to the stock price suggests you are not paying too much for what would be left over after such a sell off. Morningstar states that the index for P/B is 2.98.
Price to Cash Flow (P/CF): 17.80
Having cash left over after expenses are paid off is crucial to remaining in business so this is a good indicator about the health of a company. Generally lower is better as it could indicate the company is obtaining large cash flows not yet reflected in the stock price. Morningstar indicates the index is 13.29. Again, Abbott is on the higher end of this metric which would suggest further research is warranted.
The biotech, healthcare industry is not something I have much experience with so it was interesting to see the line-up of products companies like Abbott are continuously researching and developing. Clearly 2017 was a good year for them but it is interesting to look back at its revenue figures from 2008 – from 2008 to 2010, its revenue figures were significantly higher than they are now. Revenue dropped off in 2011 and it has never regained the highs of those years although it did get close in 2017. Perhaps this means Abbott is back set to grow with its two 2017 acquisitions. No question it is a major player in this industry and has an excellent track record of dividend payments and sustainability.
*** Top photo by Maarten van den Heuvel on Unsplash