Abbott Laboratories Valuation – February 2019 $ABT

Company Profile (excerpt from Reuters): Abbott Laboratories, incorporated on March 6, 1900, is engaged in the discovery, development, manufacture and sale of a range of healthcare products. The Company operates through four segments: Established Pharmaceutical Products, Diagnostic Products, Nutritional Products and Vascular Products. The Company, through St. Jude Medical, Inc., also offers a range of products, such as rhythm management products, electrophysiology products, heart failure related products, vascular products, structural heart products and neuromodulation products.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of ABT – February 2019

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $136,723,618,367 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.62 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -50.67% Fail
6. Moderate PEmg Ratio PEmg < 20 43.49 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 4.49 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.62 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 3.44 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail

 

Stage 2: Determination of Intrinsic Value

EPSmg $1.79
MG Growth Estimate -3.78%
MG Value $1.68
Opinion Overvalued
MG Grade D
MG Value based on 3% Growth $25.94
MG Value based on 0% Growth $15.20
Market Implied Growth Rate 17.50%
Current Price $77.79
% of Intrinsic Value 4629.78%

Abbott Laboratories does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings growth over the last ten years, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the net current assets, and the lack of earnings growth over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $2.39 in 2015 to an estimated $1.79 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 17.5% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Abbott Laboratories revealed the company was trading above its Graham Number of $35.26. The company pays a dividend of $1.12 per share, for a yield of 1.4% Its PEmg (price over earnings per share – ModernGraham) was 43.49, which was below the industry average of 51.18, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-12.3.

Abbott Laboratories scores quite poorly in the ModernGraham grading system, with an overall grade of D.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$12.30
Graham Number $35.26
PEmg 43.49
Current Ratio 1.62
PB Ratio 4.49
Current Dividend $1.12
Dividend Yield 1.44%
Number of Consecutive Years of Dividend Growth 5

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $14,632,000,000
Total Current Liabilities $9,012,000,000
Long-Term Debt $19,359,000,000
Total Assets $67,173,000,000
Intangible Assets $42,196,000,000
Total Liabilities $36,451,000,000
Shares Outstanding (Diluted Average) 1,773,870,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $3.18
Dec2018 $1.33
Dec2017 $0.27
Dec2016 $0.94
Dec2015 $2.92
Dec2014 $1.49
Dec2013 $1.62
Dec2012 $3.72
Dec2011 $3.01
Dec2010 $2.96
Dec2009 $3.69
Dec2008 $3.12
Dec2007 $2.31
Dec2006 $1.12
Dec2005 $2.16
Dec2004 $2.06
Dec2003 $1.75
Dec2002 $1.78
Dec2001 $0.99
Dec2000 $1.78
Dec1999 $1.57

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.79
Dec2018 $1.19
Dec2017 $1.23
Dec2016 $1.85
Dec2015 $2.39
Dec2014 $2.27
Dec2013 $2.77
Dec2012 $3.33
Dec2011 $3.10
Dec2010 $2.98
Dec2009 $2.82
Dec2008 $2.31
Dec2007 $1.89
Dec2006 $1.71
Dec2005 $1.92
Dec2004 $1.76
Dec2003 $1.60

Recommended Reading:

Other ModernGraham posts about the company

10 Most Overvalued Stocks of the S&P 500 – July 2018
Abbott Laboratories Valuation – May 2018 $ABT
Abbott Laboratories Valuation – January 2017 $ABT
Abbott Laboratories Valuation – August 2016 $ABT
5 Speculative and Overvalued Companies to Avoid – March 2015

Other ModernGraham posts about related companies

Becton Dickinson and Co Valuation – February 2019 $BDX
IQVIA Holdings Inc Valuation – February 2019 $IQV
Thermo Fisher Scientific Inc Valuation – February 2019 $TMO
Illumina Inc Valuation – February 2019 $ILMN
Waters Corp Valuation – February 2019 $WAT
Cerner Corp Valuation – February 2019 $CERN
HCA Healthcare Inc Valuation – February 2019 $HCA
Stryker Corp Valuation – February 2019 $SYK
Align Technology Inc Valuation – February 2019 $ALGN
Quest Diagnostics Inc Valuation – February 2019 $DGX

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Abbott Laboratories Valuation – May 2018 $ABT

Company Profile (excerpt from Reuters): Abbott Laboratories, incorporated on March 6, 1900, is engaged in the discovery, development, manufacture and sale of a range of healthcare products. The Company operates through four segments: Established Pharmaceutical Products, Diagnostic Products, Nutritional Products and Vascular Products. The Company, through St. Jude Medical, Inc., also offers a range of products, such as rhythm management products, electrophysiology products, heart failure related products, vascular products, structural heart products and neuromodulation products.

ABT Chart

ABT data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of ABT – May 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $102,164,005,792 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.66 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -57.97% Fail
6. Moderate PEmg Ratio PEmg < 20 34.92 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.34 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.66 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 3.55 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail

 

Stage 2: Determination of Intrinsic Value

EPSmg $1.70
MG Growth Estimate -3.78%
MG Value $1.59
Opinion Overvalued
MG Grade D
MG Value based on 3% Growth $24.63
MG Value based on 0% Growth $14.44
Market Implied Growth Rate 13.21%
Current Price $59.32
% of Intrinsic Value 3730.29%

Abbott Laboratories does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings growth over the last ten years, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the net current assets, and the lack of earnings growth over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $2.27 in 2014 to an estimated $1.7 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 13.21% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Abbott Laboratories revealed the company was trading above its Graham Number of $33.71. The company pays a dividend of $1.06 per share, for a yield of 1.8% Its PEmg (price over earnings per share – ModernGraham) was 34.92, which was below the industry average of 42.49, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-13.9.

Abbott Laboratories scores quite poorly in the ModernGraham grading system, with an overall grade of D.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$13.90
Graham Number $33.71
PEmg 34.92
Current Ratio 1.66
PB Ratio 3.34
Current Dividend $1.06
Dividend Yield 1.79%
Number of Consecutive Years of Dividend Growth 4

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2018
Total Current Assets $14,964,000,000
Total Current Liabilities $9,010,000,000
Long-Term Debt $21,154,000,000
Total Assets $70,908,000,000
Intangible Assets $45,170,000,000
Total Liabilities $39,509,000,000
Shares Outstanding (Diluted Average) 1,765,278,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.85
Dec2017 $0.27
Dec2016 $0.94
Dec2015 $2.92
Dec2014 $1.49
Dec2013 $1.62
Dec2012 $3.72
Dec2011 $3.01
Dec2010 $2.96
Dec2009 $3.69
Dec2008 $3.12
Dec2007 $2.31
Dec2006 $1.12
Dec2005 $2.16
Dec2004 $2.06
Dec2003 $1.75
Dec2002 $1.78
Dec2001 $0.99
Dec2000 $1.78
Dec1999 $1.57
Dec1998 $1.50

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.70
Dec2017 $1.23
Dec2016 $1.85
Dec2015 $2.39
Dec2014 $2.27
Dec2013 $2.77
Dec2012 $3.33
Dec2011 $3.10
Dec2010 $2.98
Dec2009 $2.82
Dec2008 $2.31
Dec2007 $1.89
Dec2006 $1.71
Dec2005 $1.92
Dec2004 $1.76
Dec2003 $1.60
Dec2002 $1.52

Recommended Reading:

Other ModernGraham posts about the company

Abbott Laboratories Valuation – January 2017 $ABT
Abbott Laboratories Valuation – August 2016 $ABT
5 Speculative and Overvalued Companies to Avoid – March 2015
18 Companies in the Spotlight This Week – 3/21/15
Abbott Laboratories Annual Valuation – 2015 $ABT

Other ModernGraham posts about related companies

Thermo Fisher Scientific Inc Valuation – April 2018 $TMO
Illumina Inc Valuation – April 2018 $ILMN
Waters Corp Valuation – April 2018 $WAT
Align Technology Inc Valuation – April 2018 $ALGN
HCA Healthcare Inc Valuation – April 2018 $HCA
Express Scripts Holding Co Valuation – April 2018 $ESRX
Stryker Corp Valuation – April 2018 $SYK
Cerner Corporation Valuation – April 2018 $CERN
Quest Diagnostics Inc Valuation – April 2018 $DGX
Laboratory Corporation of America Holdings Valuation – March 2018 $LH

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Abbott Laboratories Valuation – January 2017 $ABT

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Stocks for Using A Benjamin Graham Value Investing Strategy – January 2017.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Abbott Laboratories (ABT) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Abbott Laboratories (Abbott) is engaged in the discovery, development, manufacture and sale of a line of healthcare products. The Company operates in four business segments: Established Pharmaceutical Products, Diagnostic Products, Nutritional Products and Vascular Products. The Established Pharmaceutical Products segment includes the international sales of a line of branded generic pharmaceutical products. The Nutrition Products segment includes the sales of a line of adult and pediatric nutritional products. The Diagnostic Products includes the sales of diagnostic systems and tests for blood banks, hospitals, commercial laboratories and alternate-care testing sites. The Vascular Products includes the sales of coronary, endovascular, structural heart, vessel closure and other medical device products.

ABT Chart

ABT data by YCharts

[level-free]
To read the details of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Recent valuations of the components of the Dow Jones Industrial Average are available for free members, including this one of Microsoft Corporation.  In addition, here is a post detailing what can be found within each individual company’s valuation.

[/level-free]
[not-level-free]

Downloadable PDF version of this valuation:

ModernGraham Valuation of ABT – January 2017

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $69,531,384,871 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.56 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -40.35% Fail
6. Moderate PEmg Ratio PEmg < 20 21.40 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.86 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.56 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.28 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail

Stage 2: Determination of Intrinsic Value

EPSmg $1.88
MG Growth Estimate -4.25%
MG Value $0.00
Opinion Overvalued
MG Grade D+
MG Value based on 3% Growth $27.32
MG Value based on 0% Growth $16.01
Market Implied Growth Rate 6.45%
Current Price $40.31
% of Intrinsic Value N/A

Abbott Laboratories does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings growth over the last ten years, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the net current assets, and the lack of earnings growth over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $3.33 in 2012 to an estimated $1.88 for 2016. This level of demonstrated earnings growth does not support the market’s implied estimate of 6.45% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Abbott Laboratories revealed the company was trading above its Graham Number of $18.08. The company pays a dividend of $1.02 per share, for a yield of 2.5%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 21.4, which was below the industry average of 28.95, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-3.89.

Abbott Laboratories scores quite poorly in the ModernGraham grading system, with an overall grade of D+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$3.89
Graham Number $18.08
PEmg 21.40
Current Ratio 1.56
PB Ratio 2.86
Current Dividend $1.02
Dividend Yield 2.53%
Number of Consecutive Years of Dividend Growth 3

[/not-level-free]

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2016
Total Current Assets $12,978,000,000
Total Current Liabilities $8,321,000,000
Long-Term Debt $5,975,000,000
Total Assets $39,497,000,000
Intangible Assets $12,486,000,000
Total Liabilities $18,721,000,000
Shares Outstanding (Diluted Average) 1,476,366,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $1.03
Dec2015 $2.92
Dec2014 $1.49
Dec2013 $1.62
Dec2012 $3.72
Dec2011 $3.01
Dec2010 $2.96
Dec2009 $3.69
Dec2008 $3.12
Dec2007 $2.31
Dec2006 $1.12
Dec2005 $2.16
Dec2004 $2.06
Dec2003 $1.75
Dec2002 $1.78
Dec2001 $0.99
Dec2000 $1.78
Dec1999 $1.57
Dec1998 $1.50
Dec1997 $1.32
Dec1996 $1.19

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.88
Dec2015 $2.39
Dec2014 $2.27
Dec2013 $2.77
Dec2012 $3.33
Dec2011 $3.10
Dec2010 $2.98
Dec2009 $2.82
Dec2008 $2.31
Dec2007 $1.89
Dec2006 $1.71
Dec2005 $1.92
Dec2004 $1.76
Dec2003 $1.60
Dec2002 $1.52
Dec2001 $1.41
Dec2000 $1.57

Recommended Reading:

Other ModernGraham posts about the company

5 Speculative and Overvalued Companies to Avoid – March 2015
18 Companies in the Spotlight This Week – 3/21/15
Abbott Laboratories Annual Valuation – 2015 $ABT
26 Companies in the Spotlight This Week – 12/13/14
Abbott Labs Quarterly Valuation – December 2014 $ABT

Other ModernGraham posts about related companies

Johnson & Johnson Valuation – January 2017 $JNJ
Allergan plc Valuation – January 2017 $AGN
Impax Laboratories Inc – Initial Coverage $IPXL
Alexion Pharmaceuticals Inc Valuation – December 2016 $ALXN
Akorn Inc Valuation – December 2016 $AKRX
SciClone Pharmaceuticals Inc Valuation – Initial Coverage $SCLN
Regeneron Pharmaceuticals Inc Valuation – November 2016 $REGN
Merck & Co Inc Valuation – August 2016 $MRK
Mallinckrodt PLC Valuation – August 2016 $MNK
Vertex Pharmaceuticals Inc Valuation – August 2016 $VRTX

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Abbott Laboratories Valuation – August 2016 $ABT

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Companies Benjamin Graham Would Invest In Today – July 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Abbott Laboratories (ABT) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Abbott Laboratories (Abbott) is engaged in the discovery, development, manufacture and sale of a line of healthcare products. The Company operates in four business segments: Established Pharmaceutical Products, Diagnostic Products, Nutritional Products and Vascular Products. The Established Pharmaceutical Products segment includes the international sales of a line of branded generic pharmaceutical products. The Diagnostic Products segment includes the sales of a line of adult and pediatric nutritional products. The Nutritional Products includes the sales of diagnostic systems and tests for blood banks, commercial laboratories and alternate-care testing sites. The Vascular Products includes the sales of coronary, endovascular, structural heart, vessel closure and other medical device products. Its Established Pharmaceutical Products segment’s therapeutic area portfolio of products includes gastroenterology products, women’s health products, and respiratory drugs and vaccines.

ABT Chart

ABT data by YCharts

[level-free]
To read the details of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.

[/level-free]
[not-level-free]

Downloadable PDF version of this valuation:

ModernGraham Valuation of ABT – August 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $66,208,206,041 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.50 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -31.69% Fail
6. Moderate PEmg Ratio PEmg < 20 20.92 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.22 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.50 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.39 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail

Stage 2: Determination of Intrinsic Value

ABT value chart August 2016

EPSmg $2.15
MG Growth Estimate -4.25%
MG Value $0.00
Opinion Overvalued
MG Grade D+
MG Value based on 3% Growth $31.14
MG Value based on 0% Growth $18.25
Market Implied Growth Rate 6.21%
Current Price $44.93
% of Intrinsic Value N/A

Abbott Laboratories does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings growth over the last ten years, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of earnings growth over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $3.33 in 2012 to an estimated $2.15 for 2016. This level of demonstrated earnings growth does not support the market’s implied estimate of 6.21% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Abbott Laboratories revealed the company was trading above its Graham Number of $24. The company pays a dividend of $1 per share, for a yield of 2.2%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 20.92, which was below the industry average of 38.69, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-4.17.

Abbott Laboratories scores quite poorly in the ModernGraham grading system, with an overall grade of D+.

Stage 3: Information for Further Research

ABT charts August 2016

Net Current Asset Value (NCAV) -$4.17
Graham Number $24.00
PEmg 20.92
Current Ratio 1.50
PB Ratio 3.22
Current Dividend $1.00
Dividend Yield 2.23%
Number of Consecutive Years of Dividend Growth 3

[/not-level-free]

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 6/1/2016
Total Current Assets $12,988,000,000
Total Current Liabilities $8,673,000,000
Long-Term Debt $6,016,000,000
Total Assets $39,831,000,000
Intangible Assets $15,063,000,000
Total Liabilities $19,156,000,000
Shares Outstanding (Diluted Average) 1,480,492,000

Earnings Per Share History

Next Fiscal Year Estimate $1.82
Dec2015 $2.92
Dec2014 $1.49
Dec2013 $1.62
Dec2012 $3.72
Dec2011 $3.01
Dec2010 $2.96
Dec2009 $3.69
Dec2008 $3.12
Dec2007 $2.31
Dec2006 $1.12
Dec2005 $2.16
Dec2004 $2.06
Dec2003 $1.75
Dec2002 $1.78
Dec2001 $0.99
Dec2000 $1.78
Dec1999 $1.57
Dec1998 $1.50
Dec1997 $1.32
Dec1996 $1.19

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $2.15
Dec2015 $2.39
Dec2014 $2.27
Dec2013 $2.77
Dec2012 $3.33
Dec2011 $3.10
Dec2010 $2.98
Dec2009 $2.82
Dec2008 $2.31
Dec2007 $1.89
Dec2006 $1.71
Dec2005 $1.92
Dec2004 $1.76
Dec2003 $1.60
Dec2002 $1.52
Dec2001 $1.41
Dec2000 $1.57

Recommended Reading:

Other ModernGraham posts about the company

5 Speculative and Overvalued Companies to Avoid – March 2015
18 Companies in the Spotlight This Week – 3/21/15
Abbott Laboratories Annual Valuation – 2015 $ABT
26 Companies in the Spotlight This Week – 12/13/14
Abbott Labs Quarterly Valuation – December 2014 $ABT

Other ModernGraham posts about related companies

Johnson & Johnson Valuation – August 2016 $JNJ
Regeneron Pharmaceuticals Inc Valuation – August 2016 $REGN
AmerisourceBergen Corp Valuation – July 2016 $ABC
Perrigo Co PLC Valuation – July 2016 $PRGO
AbbVie Inc Valuation – July 2016 $ABBV
Gilead Sciences Inc Valuation – July 2016 $GILD
Eli Lilly and Company Valuation – July 2016 $LLY
Zoetis Inc Valuation – June 2016 $ZTS
Merck & Co Inc Valuation – March 2016 $MRK
Bristol-Myers Squibb Company Valuation – February 2016 $BMY

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Abbott Laboratories Annual Valuation – 2015 $ABT

500px-AbbottLaboratories.svgBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Most Undervalued Companies for the Defensive Investor – March 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Abbott Laboratories (ABT) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Abbott Laboratories is engaged in the discovery, development, manufacture and sale of healthcare products. The Company’s business segments include established pharmaceutical products, which include gastroenterology products, women’s health products, cardiovascular and metabolic products, pain and central nervous system products, and respiratory drugs and vaccines; diagnostic products, which include a range of diagnostic systems and tests; nutritional products, which include a range of pediatric and adult nutritional products, and vascular products, which include a range of coronary, endovascular, vessel closure and structural heart devices for the treatment of vascular disease. The Company is also engaged in the field of electrophysiology with technologies that can transform how physicians treat people with complex heart rhythm disorders.

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 3/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years – PASS
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – FAIL
  6. Moderate PEmg ratio – PEmg is less than 20 – FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 3/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – FAIL
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – PASS
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – FAIL

Valuation Summary

Key Data:

Recent Price $47.25
MG Value $3.15
MG Opinion Overvalued
Value Based on 3% Growth $32.93
Value Based on 0% Growth $19.31
Market Implied Growth Rate 6.15%
Net Current Asset Value (NCAV) -$2.95
PEmg 20.80
Current Ratio 1.45
PB Ratio 3.34

Balance Sheet – December 2014

Current Assets $15,261,000,000
Current Liabilities $10,532,000,000
Total Debt $3,408,000,000
Total Assets $41,275,000,000
Intangible Assets $16,265,000,000
Total Liabilities $19,749,000,000
Outstanding Shares 1,522,100,000

Earnings Per Share

2014 $1.49
2013 $1.62
2012 $3.72
2011 $3.01
2010 $2.96
2009 $3.69
2008 $3.12
2007 $2.31
2006 $1.12
2005 $2.16
2004 $2.06

Earnings Per Share – ModernGraham

2014 $2.27
2013 $2.77
2012 $3.33
2011 $3.10
2010 $2.98
2009 $2.82

Dividend History

Conclusion:

Abbott Laboratories is not suitable for the Enterprising Investor or for the Defensive Investor.  The Defensive Investor is concerned by the the low current ratio, low earnings growth over the last ten years, and the high PEmg and PB ratios.  The Enterprising Investor is concerned by the low current ratio and the lack of earnings growth over the last five years.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities at this time.  From a valuation side of things, the company appears to be overvalued after seeing its EPSmg (normalized earnings) drop from $2.98 in 2010 to only $2.27 for 2014.  This level of demonstrated growth does not support the market’s implied estimate of a 6.15% annual earnings over the next 7-10 years, leading the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value above the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Abbott Laboratories (ABT)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in Abbott Laboratories (ABT) or in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

Abbott Labs Quarterly Valuation – December 2014 $ABT

500px-AbbottLaboratories.svgBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Undervalued Dow Components to Research – December 2014.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Abbott Labs (ABT) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Abbott Laboratories is engaged in the discovery, development, manufacture and sale of healthcare products. The Company’s business segments include established pharmaceutical products, which include gastroenterology products, women’s health products, cardiovascular and metabolic products, pain and central nervous system products, and respiratory drugs and vaccines; diagnostic products, which include a range of diagnostic systems and tests manufactured, marketed and sold worldwide to blood banks, hospitals, commercial laboratories, clinics, physicians’ offices, government agencies, alternate-care testing sites and plasma protein therapeutic companies; nutritional products, which include a range of pediatric and adult nutritional products manufactured, marketed and sold worldwide, and vascular products, which include a range of coronary, endovascular, vessel closure and structural heart devices for the treatment of vascular disease manufactured, marketed and sold across the world.

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 5/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years – PASS
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
  6. Moderate PEmg ratio – PEmg is less than 20 – PASS
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 4/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – PASS
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – FAIL

Valuation Summary

Key Data:

Recent Price $44.41
MG Value $9.65
MG Opinion Overvalued
Value Based on 3% Growth $36.46
Value Based on 0% Growth $21.37
Market Implied Growth Rate 4.58%
Net Current Asset Value (NCAV) -$2.08
PEmg 17.66
Current Ratio 1.52
PB Ratio 2.95

Balance Sheet – September 2014

Current Assets $16,464,000,000
Current Liabilities $10,823,000,000
Total Debt $3,719,000,000
Total Assets $42,514,000,000
Intangible Assets $16,142,000,000
Total Liabilities $19,626,000,000
Outstanding Shares 1,519,800,000

Earnings Per Share

2014 (estimate) $2.22
2013 $1.62
2012 $3.72
2011 $3.01
2010 $2.96
2009 $3.69
2008 $3.12
2007 $2.31
2006 $1.12
2005 $2.16
2004 $2.06

Earnings Per Share – ModernGraham

2014 (estimate) $2.51
2013 $2.77
2012 $3.33
2011 $3.10
2010 $2.98
2009 $2.82

Dividend History

Conclusion:

Abbott Labs qualifies for the Enterprising Investor but not for the Defensive Investor.  The Defensive Investor is concerned by the low current ratio and the high PB ratio, while the Enterprising Investor is concerned by the lack of earnings growth over the last five years.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel very comfortable proceeding with further research and comparing the company to other opportunities.  From a valuation side of things, the company appears to be overvalued after seeing its EPSmg (normalized earnings) drop from $2.98 in 2010 to only an estimated $2.51 for 2014.  This level of demonstrated growth does not support the market’s implied estimate of 4.58% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value below the price.

Be sure to check out previous ModernGraham valuations of Abbott Labs (ABT) for greater perspective!

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Abbott Labs (ABT)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in Abbott Labs (ABT) or in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

Abbott Laboratories Quarterly Stock Valuation – September 2014 $ABT

500px-AbbottLaboratories.svgBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Undervalued Companies for the Defensive Investor Near 52 Week Lows – September 2014.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Abbott Laboratories (ABT) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Abbott Laboratories (Abbott) is engaged in the discovery, development, manufacture, and sale of a portfolio of science-based health care products. Abbott operates in four business segments: diagnostics, medical devices, nutritionals and generic pharmaceuticals. Geographically, 30% of its revenue is generated in the United States; 30% in Western Europe, Canada, Japan and Australia, and 40% in the economies, including India, China, Russia and Brazil. In January 2013, the Company completed the separation of its research-based pharmaceuticals business, which became AbbVie, a new independent biopharmaceutical company. In August 2013, Abbott Laboratories completed its acquisition of OptiMedica Corporation. In August 2013, Abbott Laboratories completed its acquisition of IDEV Technologies.
ABT Chart

ABT data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 6/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years – PASS
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period -PASS
  6. Moderate PEmg ratio – PEmg is less than 20 – PASS
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – PASS

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 4/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – PASS
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – FAIL

Valuation Summary

Key Data:

Recent Price $42.56
MG Value $9.22
MG Opinion Overvalued
Value Based on 3% Growth $36.06
Value Based on 0% Growth $21.14
Market Implied Growth Rate 4.31%
Net Current Asset Value (NCAV) $0.26
PEmg 17.12
Current Ratio 1.85
PB Ratio 2.71

Balance Sheet – 6/30/2014

Current Assets $18,258,000,000
Current Liabilities $9,853,000,000
Total Debt $3,403,000,000
Total Assets $41,475,000,000
Intangible Assets $15,179,000,000
Total Liabilities $17,873,000,000
Outstanding Shares 1,503,700,000

Earnings Per Share

2014 (estimate) $2.21
2013 $1.50
2012 $3.75
2011 $3.02
2010 $2.96
2009 $3.69
2008 $3.03
2007 $2.31
2006 $1.12
2005 $2.16
2004 $2.02

Earnings Per Share – ModernGraham

2014 (estimate) $2.49
2013 $2.74
2012 $3.34
2011 $3.09
2010 $2.96
2009 $2.79

Dividend History

ABT Dividend Chart

ABT Dividend data by YCharts

Conclusion:

Abbott Laboratories is suitable for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor’s only initial concern is the low current ratio while the Enterprising Investor’s only concern is the lack of earnings growth over the last five years.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with research into the company and comparing it to other opportunities.  From a valuation perspective, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $2.96 in 2010 to an estimated $2.49 for 2014.  This level of demonstrated growth does not support the market’s implied estimate of 4.31% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value below the price.

Be sure to check out the previous ModernGraham valuations of Abbott Laboratories (ABT) for more perspective!

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Abbott Laboratories (ABT)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in Abbott Laboratories (ABT) or in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

Abbott Labs Quarterly Valuation – June 2014 $ABT

500px-AbbottLaboratories.svgBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Undervalued Companies for the Enterprising Investor Near 52 Week Lows.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Abbott Labs (ABT) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Abbott Laboratories (Abbott) is engaged in the discovery, development, manufacture, and sale of a portfolio of science-based health care products. Abbott operates in four business segments: diagnostics, medical devices, nutritionals and generic pharmaceuticals. Geographically, 30% of its revenue is generated in the United States; 30% in Western Europe, Canada, Japan and Australia, and 40% in the economies, including India, China, Russia and Brazil. In January 2013, the Company completed the separation of its research-based pharmaceuticals business, which became AbbVie, a new independent biopharmaceutical company. In August 2013, Abbott Laboratories completed its acquisition of OptiMedica Corporation. In August 2013, Abbott Laboratories completed its acquisition of IDEV Technologies.
ABT Chart

ABT data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 5/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years – PASS
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – FAIL
  6. Moderate PEmg ratio – PEmg is less than 20 – PASS
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 4/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – PASS
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – FAIL

Valuation Summary

Key Data:

Recent Price $39.90
MG Value $8.74
MG Opinion Overvalued
Value Based on 3% Growth $35.82
Value Based on 0% Growth $21.00
Market Implied Growth Rate 3.83%
Net Current Asset Value (NCAV) -$0.23
PEmg 16.15
Current Ratio 1.76
PB Ratio 2.56

Balance Sheet – 3/31/2014

Current Assets $17,931,000,000
Current Liabilities $10,186,000,000
Total Debt $3,387,000,000
Total Assets $41,662,000,000
Intangible Assets $15,394,000,000
Total Liabilities $18,272,000,000
Outstanding Shares 1,501,940,000

Earnings Per Share

2014 (estimate) $2.16
2013 $1.50
2012 $3.75
2011 $3.02
2010 $2.96
2009 $3.69
2008 $3.03
2007 $2.31
2006 $1.12
2005 $2.16
2004 $2.02

Earnings Per Share – ModernGraham

2014 (estimate) $2.47
2013 $2.74
2012 $3.34
2011 $3.09
2010 $2.96
2009 $2.79

Dividend History
ABT Dividend Chart

ABT Dividend data by YCharts

Conclusion:

Abbott Labs is suitable for the Enterprising Investor but not the Defensive Investor, who is concerned with the low current ratio and the lack of sufficient earnings growth over the last ten years.  The Enterprising Investor is only concerned with the lack of earnings growth over the last five years.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company and comparing it to other opportunities through a review of ModernGraham’s valuation of Johnson & Johnson (JNJ) and ModernGraham’s valuation of Medtronics (MDT).  As for a valuation, the company appears to be overvalued after seeing its EPSmg (normalized earnings) drop from $2.96 in 2010 to only an estimated $2.47 in 2014.  This demonstrated lack of growth does not support the market’s implied estimate of 3.83% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value below the market price at this time.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Abbott Labs (ABT)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Be sure to review the previous ModernGraham Valuations of Abbott Labs (ABT)!

Disclaimer:  The author did not hold a position in Analog Devices Inc. (ADI) or any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours. Logo taken from wikipedia; this article is not affiliated with the company in any manner.

Abbott Laboratories (ABT) Quarterly Valuation – March 2014

500px-AbbottLaboratories.svgBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Abbott Laboratories fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Abbott Laboratories (Abbott) is engaged in the discovery, development, manufacture, and sale of a portfolio of science-based health care products. Abbott operates in four business segments: diagnostics, medical devices, nutritionals and generic pharmaceuticals. Geographically, 30% of its revenue is generated in the United States; 30% in Western Europe, Canada, Japan and Australia, and 40% in the economies, including India, China, Russia and Brazil. In January 2013, the Company completed the separation of its research-based pharmaceuticals business, which became AbbVie, a new independent biopharmaceutical company. In August 2013, Abbott Laboratories completed its acquisition of OptiMedica Corporation. In August 2013, Abbott Laboratories completed its acquisition of IDEV Technologies.

ABT Chart

ABT data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 7/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – PASS
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years – PASS
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
  6. Moderate PEmg ratio – PEmg is less than 20 – PASS
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – PASS

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 4/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – PASS
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – FAIL

Valuation Summary

Key Data:

Recent Price $39.71
MG Value $21.90
MG Opinion Overvalued
Value Based on 3% Growth $39.80
Value Based on 0% Growth $23.33
Market Implied Growth Rate 2.98%
Net Current Asset Value (NCAV) $0.95
PEmg 14.47
Current Ratio 2.02
PB Ratio 2.44

Balance Sheet – 12/31/2013

Current Assets $19,247,000,000
Current Liabilities $9,507,000,000
Total Debt $3,388,000,000
Total Assets $42,953,000,000
Intangible Assets $15,507,000,000
Total Liabilities $17,782,000,000
Outstanding Shares 1,548,100,000

Earnings Per Share

2013 $1.50
2012 $3.75
2011 $3.02
2010 $2.96
2009 $3.69
2008 $3.03
2007 $2.31
2006 $1.12
2005 $2.16
2004 $2.02
2003 $1.75

Earnings Per Share – ModernGraham 

2013 $2.74
2012 $3.34
2011 $3.09
2010 $2.96
2009 $2.79
2008 $2.27

Dividend History

ABT Dividend Chart

ABT Dividend data by YCharts

Conclusion:

Abbott Labs is a very strong company at the initial stages of the ModernGraham analysis, having passed all of the requirements of the Defensive Investor.  The company also passes the requirements of the Enterprising Investor, except for the requirement regarding earnings growth.  As a result, value investors seeking to follow the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding further with additional research including a review of ModernGraham’s valuation of Johnson and Johnson (JNJ) and 5 Outstanding Dow Components.  Moving on to the valuation stage, the company does not fare well after exhibiting a lack of earnings growth over the last five years.  EPSmg (normalized earnings) have gone from $2.79 in 2009 to $2.74 for 2014, and this lack of growth clearly does not support the market’s implied estimate of 2.98% earnings growth going forward.  Accordingly, the ModernGraham valuation model has returned an estimate of intrinsic value that falls below a margin of safety relative to the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Abbott Laboratories (ABT)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

If you like our valuations, why not check out ModernGraham Stocks & Screens?  It’s a great way to review the valuations while screening for things like low PE ratio, undervalued companies, etc.!

Disclaimer:  The author did not hold a position in Abbott Laboratories (ABT) or any of the other companies listed in this article at the time of publication and had no intention of changing that position within the next 72 hours.

Logo taken from the Wikipedia; this article is not affiliated with the company in any manner.

ModernGraham Valuation: Abbott Laboratories (ABT)

moneyCompany Profile (obtained from Google Finance): Abbott Laboratories (Abbott) is engaged in the discovery, development, manufacture, and sale of a portfolio of science-based health care products. Abbott operates in four business segments: diagnostics, medical devices, nutritionals and generic pharmaceuticals. Geographically, 30% of its revenue is generated in the United States; 30% in Western Europe, Canada, Japan and Australia, and 40% in the economies, including India, China, Russia and Brazil. In January 2013, the Company completed the separation of its research-based pharmaceuticals business, which became AbbVie, a new independent biopharmaceutical company. In August 2013, Abbott Laboratories completed its acquisition of OptiMedica Corporation. In August 2013, Abbott Laboratories completed its acquisition of IDEV Technologies.

Defensive and Enterprising Investor Tests (What is the significance of these tests, and what is PEmg ratio?):

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 6/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years – PASS
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
  6. Moderate PEmg ratio – PEmg is less than 20 – PASS
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – PASS

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 5/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – PASS
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary (Explanation of the ModernGraham Valuation Model)

Key Data:

MG Value $26
MG Opinion Overvalued
Value Based on 3% Growth $41
Value Based on 0% Growth $24
Market Implied Growth Rate 2.27%
Net Current Asset Value (NCAV) -$0.44
PEmg 13.03
Current Ratio 1.74
PB Ratio 2.42

Balance Sheet – 9/30/2013 

Current Assets $19,748,900,000
Current Liabilities $11,331,700,000
Total Debt $3,403,100,000
Total Assets $44,132,500,000
Intangible Assets $15,651,000,000
Total Liabilities $20,436,200,000
Outstanding Shares 1,546,190,000

Earnings Per Share

2013 (estimate) $1.81
2012 $3.75
2011 $3.02
2010 $2.96
2009 $3.69
2008 $3.03
2007 $2.31
2006 $1.12
2005 $2.16
2004 $2.02
2003 $1.75
2002 $1.62

Earnings Per Share – Modern Graham 

2013 (estimate) $2.85
2012 $3.34
2011 $3.09
2010 $2.96
2009 $2.79
2008 $2.27

Conclusion:

Abbott Laboratories has strong financials, having passed every test of the Defensive Investor and Enterprising, except for the Defensive Investor’s requirement of a current ratio greater than 2.  This is a company that has displayed stable earnings growth, a strong dividend history, and is currently trading at fairly low PEmg and PB ratios.  Compare this to some similar companies such as Merck (MRK), Pfizer (PFE), and Johnson and Johnson (JNJ) and you will find Abbott Laboratories to be the strongest of the bunch.  However, from a valuation perspective the company appears to be overvalued at the current time.  While the EPSmg (normalized earnings) have grown from $2.27 in 2008 to an estimated $2.85 for 2013, that level of historical growth does not support the market’s implied rate of 2.27%.  However, if the company can achieve a growth rate of around 3%, the current price would be fair.  As a result, Defensive Investors and Enterprising Investors should keep a close eye on Abbott Laboratories to find a more opportunistic time to purchase.

What do you think?  Do you agree that Abbott Laboratories is overvalued?  Is the company suitable for either Defensive Investors or Enterprising Investors?  Leave a comment or mention @ModernGraham on Twitter to discuss.

If you like our valuations, why not check out ModernGraham Stocks & Screens?  It’s a great way to review the valuations while screening for things like low PE ratio, undervalued companies, etc.!

Disclaimer:  The author did not hold a position in Abbott Laboratories at the time of publication and had no intention of entering into a position within the next 72 hours.

Photo Credit:  Andrew Magill

Back To Top