Abbott Labs is a large-cap diversified healthcare company founded in 1888 year. Company operates in more than 150 countries – 70% of sales is generated outside the U.S., 50% comes from Emerging Markets. Company operates in four segments:
• Medical Devices (~27% of sales)
• Established Pharmaceuticals (~16% of sales)
• Diagnostics (~23% of sales)
• Nutrition (~34% of sales)
If we look on operating earnings we can see that business is well diversified:
As we can see Nutrition is the biggest segments both as it comes to sales and operating earnings. The most important brands are Similac, EleCare, Metabolic Nutrition, Pedialyte and many more. I see no significant concentration of particular product/market. The second biggest segment is Medical Devices – mainly optical, vascular and diabetes care segments. Diagnostics segments is responsible for products used in laboratories. The Established Pharmaceuticals sells branded generics.
Well diversified, long term growing business.
As we can see most of sales is generated outside the U.S. It means that strong USD is not favorable for company.
As it comes to financials (estimates):
Market cap ~ $60B
Net debt ~$2B
Payout ratio ~50%
Beta = 1.4
Dividend yield 2.6% + buyback around $3b (buyback yield = 5%)
Estimated valuation ratios:
EV/EBITDA = 12.4
P/E = 18.8
ABT is one of The Dividend Aristocrats – company is paying dividend from 1973 year. In 2013 company spun off AbbVie (see more) so the business risk profile has changed. Nevertheless I assume company will continue tradition of paying increasing dividends. 2.6% of dividend yield is below my expectations. Although historically business model was different and now AbbVie pays higher dividends I would expect company of such profile to pay more than 3% and I can wait for share price to plunge and dividend yield to increase.
Drawdown risk analysis:
Currently drawdown is around 20% which is nice, but valuation is still rather high. Historically drawdowns of around 30% happened and for me levels of around $33 would be attractive – it means 35% drawdown, valuation 10 times EBITDA, P/E 15 and 3.2% dividend yield. With weak market at the beginning of the year I think it is not impossible to catch good company at such discount. Especially if we look that company makes lots of money from emerging markets and strong USD is not favourable.
Summing up, I like Abbott Labs and I am waiting for special occasion to buy some shares. Potential important upside is weakening of USD – results are growing in hard times and results should grow even faster with weaker USD. If share price plunges to around $33 I think I will buy some shares.
Disclaimer ABT – no position