There is lots of going on in Abbott Labs and I haven’t looked at company for a while. Let’s make some brief update.

Company is to buy St. Jude Medical and my previous summary was:

Summing up, in the short term announcement of transaction was value decretive for investors. No one knows what will happen in the future. First of all there is a possibility that transaction will not be completed. Secondly there is a risk that synergies will not be as high as estimated. Also riskiness of company will significantly increase due to a high leverage. I will look closely on company and as previously assumed at $33 I will consider buying some shares. In long term current weakness might be a good opportunity for long term investors (but growth should come mainly from share price appreciation than dividends paid) and leverage (if used correctly) can positively influence profits.

Since that (may) shares were up from around $38 to around $45 and now are back at $39. Volatility is huge, but it seems that levels of around $38 are currently a midterm support level. Anyway, let’s look on fundamentals and not chart…

Deal with St. Jude Medical is to be closed today (4 January). So far we don’t know how high synergies should be. My first feeling is that it is not cheap acquisition, but we will see.

From other news Abbott is selling Medical Optics to Johnson & Johnson for $4.325 Billion. Well that’s positive in my opinion, because leverage after acquisition of St. Jude Medical will be a little bit smaller. I estimate sales of this part of business for $1b and even if margins are high then multiple should be above Abbott is trading. Positive in my opinion.

Ongoing business is doing OK, which shows change in guidance: Abbott adjusted its full-year 2016 EPS guidance for continuing operations under GAAP to $0.59 to $0.61, and narrowed and raised at the mid-point its full-year 2016 adjusted EPS for continuing operations to $2.19 to $2.21, exceeding its initial guidance for the year.



EV/EBITDA = 11.3

P/E = 17.2

Dividend yield 3%.

Summing up, it is tempting to buy shares @38, because valuation is getting attractive, though not very low. Moreover there is story to be played (synergies, successful integration etc.). The problem is that I am not sure how business will look like after a year or two, a lot is changing in company’s structure and changes are significant. This makes me to require some extra discount as visibility of investment is low.


Disclaimer ABT – no position