Abbott Laboratories

Date: May 10, 2024.

Company’s Overview

A global healthcare giant, Abbott Laboratories (ABT) develops and sells medical devices, diagnostics, nutritional products, and branded generic drugs. Their products range from life-saving heart stents to Pedialyte for rehydration and Similac baby formula, improving people’s health at every life stage, all over the world.

Competition

Revenue Segments

The Company’s net sales proportions by segment for the most recent quarterly report are composed by:

Related Risks

Abbott Laboratories, a healthcare powerhouse, faces hurdles despite its global reach. Fierce competition in the medical device and drug markets can squeeze their profits. Evolving regulations and government pricing pressures can limit their ability to launch new products or maintain existing margins. Lawsuits over product safety can damage their reputation and finances. Global supply chain disruptions can hamper production. Delays or failures in clinical trials can stall their future product pipeline. To stay ahead, Abbott needs to focus on innovation, navigating regulations effectively, managing costs tightly, and ensuring a reliable supply chain.

Financial Performance

Company’s Revenues

Revenues from 2021 to 2023:

• Abbott Laboratories annual revenue for 2023 was $40.109B, a 8.12% decline from 2022.
• Abbott Laboratories annual revenue for 2022 was $43.653B, a 1.34% increase from 2021.
• Abbott Laboratories annual revenue for 2021 was $43.075B, a 24.47% increase from 2020.

The yearly revenue from 2010 till 2023 is:

**The 2024 and 2025 values are the expected by the analysts

Company’s Net Income

Net Income from 2021 to 2023:

• Abbott Laboratories annual net income for 2023 was $5.723B, a 17.45% decline from 2022.
• Abbott Laboratories annual net income for 2022 was $6.933B, a 1.95% decline from 2021.
• Abbott Laboratories annual net income for 2021 was $7.071B, a 57.31% increase from 2020.

The yearly net income from 2010 till 2023 is:

**The 2024 and 2025 values are the expected by the analysts

Company’s EPS

EPS from 2021 to 2023:

• Abbott Laboratories 2023 annual EPS was $3.26, a 16.62% decline from 2022.
• Abbott Laboratories 2022 annual EPS was $3.91, a 0.76% decline from 2021.
• Abbott Laboratories 2021 annual EPS was $3.94, a 57.6% increase from 2020.

Company’s Free Cash Flow

Free Cash Flow from 2021 to 2023:

• Abbott Laboratories annual free cash flow for 2023 was $5.059B, a 35.17% decline from 2022.
• Abbott Laboratories annual free cash flow for 2022 was $7.804B, a 9.76% decline from 2021.
• Abbott Laboratories annual free cash flow for 2021 was $8.648B, a 51.08% increase from 2020.

The yearly free cash flow from 2010 till 2023 is:

**The 2024 and 2025 values are the expected by the analysts

Shares Outstanding

In December 2021, ABT’s board of directors authorised the repurchase of up to $5 billion of its common shares.

In 2023, Abbott repurchased approximately 9.8 million of its common shares for $1.025 billion.

The Company overall has increased its shares outstanding by almost 12% from 2009.

Financial Strength

Abbott Laboratories presents a financially healthy picture, but with some room for improvement in liquidity. Their asset-to-liability ratio of 2.13 indicates a comfortable buffer. For every $1 they owe in liabilities, they have $2.13 in assets to cover them. This provides some breathing room for unexpected costs or strategic investments in new healthcare products and technologies.

The current ratio of 1.64 suggests a slight good regarding short-term obligations. This metric measures a company’s ability to cover debts due within a year using short-term assets (cash, receivables). While not necessarily a dealbreaker, a ratio closer to 2 would provide Abbott with even greater flexibility to address immediate financial needs.

Valuation

Based on the analysis performed, ABT’s price is slightly overvalued. As key metrics, we considered 10% Required Rate of Return (RRR) and 20% margin of safety. Note that in the analysis we take into consideration also the cash and cash equivalents and the total debt.

The company has received a range of ratings from buy to sell. Specifically, there were 13 buy, 6 overweight, 7 hold, 1 underweight and 0 sell ratings. The consensus rating leans toward buy.

Abbott Laboratories presents a solid case for investors, boasting a leadership position in the healthcare industry and healthy financial metrics. Their consistent growth is evident in a 10-year CAGR of 7.08% for revenue, 9.62% for net income, and 6.89% for free cash flow. Their superior profitability is reflected in impressive gross and net profit margins that exceed industry averages. Gross margin sits at 55.32% compared to the industry median of 51.88%, and net margin is at 14.27% compared to the industry median of 13.73%. Additionally, they boast a strong return on invested capital (ROIC) of 10.58%.

Their financial strength is good, with a comfortable asset-to-liability ratio of 2.13 (meaning for every $1 they owe in liabilities, they have $2.13 in assets to cover them) and a decent liquidity ratio of 1.64. The decreasing trend in outstanding shares in the past five years is a positive sign.

The biggest hurdle appears to be the stock price. With a P/E ratio of 32.29, it’s slightly overvalued compared to the industry median of 26.48. While a premium is expected for a leader in the healthcare sector, this one might be a tad high.

Ultimately, Abbott’s impressive performance, healthy financials, and leadership position are countered by a slightly high valuation. Their ability to maintain their growth trajectory and justify their premium valuation will be key for investors seeking a stable, well-established player in the healthcare market.

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Disclaimer

Please note that I am not a licensed financial advisor and the information provided here should not be construed as financial advice. I am simply sharing my understanding of the topics based on my research and personal experiences. It is always advisable to consult with a qualified financial advisor before making any investment decisions.

The information I provide is based on publicly available sources and my own interpretations. I strive to provide accurate and up-to-date information, but I cannot guarantee the correctness or completeness of the information.

Any opinions expressed here are my own and do not necessarily reflect the views of any other individual or organisation.

Please use your own judgement and conduct your own research before making any investment decisions.