Abbott Laboratories- Growth and Income

Posted: Jul 26, 2011 12:01 AM

Abbott Laboratories (ABT) reported better than expected results for the second quarter on July 20. Strong emerging market sales helped drive EPS up 11% to $1.12, beating the Zacks Consensus Estimate by a penny.

Management raised its guidance for the remainder of 2011, prompting analysts to revise their estimates higher. This sent the stock to a Zacks #2 Rank (Buy).

Abbott also pays a dividend that yields a very solid 3.7%. With an incredible track record of consecutive dividend payments and strong free cash flow, its dividend looks very stable.

Valuation is attractive too with shares trading at just 10.9x forward earnings, well below the industry average.

Company Description

Abbott Laboratories discovers, develops, manufactures, and sells a broad range of health care products. The company reports revenue in 4 segments: Pharmaceutical Products, Diagnostic Products, Nutritional Products, and Vascular Products.

Abbott was founded in 1888 and is headquartered in Abbott Park, Illinois. It has a market cap of $82.1 billion.

Second Quarter Results

On July 20, Abbott reported second quarter earnings per share of $1.12, beating the Zacks Consensus Estimate by a penny. It was a 10.9% increase over the same quarter in 2010.

Net sales rose 9.0% to $9.616 billion, also beating the Zacks Consensus Estimate of $9.556 billion. This marks the company's third consecutive positive sales surprise. Excluding the effect of foreign currencies, sales were up 4.4%.

The emerging markets continued to be a major growth driver for Abbott, with sales up 23.2% year-over-year. The emerging markets accounted for 27% of overall sales in the quarter.

The gross margin came in above expectations at 60.2% due to a favorable product mix. Operating income increased 10.4%.


Management raised its EPS guidance for 2011 "based on strong performance to date and the outlook for the remainder of the year". The company now expects to earn between $4.58 and $4.64 per share, up from previous guidance of $4.54 to $4.64.

Analysts have largely been raising their estimates for both 2011 and 2012 over the last few days. This has sent shares to a Zacks #2 Rank (Buy).

The Zacks Consensus Estimate for 2011 has inched up from $4.61 to $4.63, which is at the high end of guidance. The 2012 consensus estimate has risen from $4.98 to $5.00. Based on these consensus estimates, earnings are projected to grow 11% this year and 8% next year.


Abbott pays a dividend that yields a stellar 3.7%. The company has been consistently raising its dividend over the last decade. Since 2000, Abbott has hiked it at an average annual rate of 9.1%.

ABT: Abbott Laboratories

The company has paid an impressive 350 consecutive dividends dating back to 1924. Abbott has also generated over $8 billion in free cash flow over the last 12 months, so don't expect a dividend cut anytime soon.


Shares of ABT trade at just 10.9x 12-month forward earnings, a significant discount to the industry average of 16.5x. Over the last 10 years, Abbott has traded at a median of 16.8x 12-month forward earnings.

Its price to book ratio of 3.3 is also less than the industry multiple of 3.8.

Over the last 12 months, Abbott produced return on assets of 11.5%, well above the peer group average of 6.8%.

The Bottom Line

With rising earnings estimates, solid growth potential and a juicy dividend yield, Abbott looks attractive at just 10.9x forward earnings.

Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research.

ABBOTT LABS (ABT): Free Stock Analysis Report
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