Abbott Laboratories (ABT, Financial) experienced a daily loss of 0.6%, with a 3-month gain of 2.52%. Its Earnings Per Share (EPS) stand at 2.93. This raises the question: is the stock modestly undervalued? The following analysis delves into the valuation of Abbott Laboratories, providing insights that could aid in informed investment decisions.
Introduction to Abbott Laboratories
Abbott Laboratories is a major player in the medical devices industry, manufacturing and marketing adult and pediatric nutritional products, diagnostic equipment, testing kits, and branded generic drugs. The company's product range includes pacemakers, coronary stents, infant formula, molecular diagnostic platforms, and more. With approximately 60% of its sales generated outside the United States, Abbott Laboratories has a global presence.
The company's current stock price stands at $103.58, while its estimated fair value (GF Value) is $118.31. This comparison prompts a deeper investigation into the company's value, intertwining financial assessment with key company details.
Understanding the GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. It is computed based on three factors: historical multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line provides an overview of the fair value at which the stock should ideally be traded. If the stock price significantly deviates from the GF Value Line, it may indicate overvaluation or undervaluation, affecting future returns.
According to GuruFocus' valuation method, Abbott Laboratories (ABT, Financial) is believed to be modestly undervalued. The company's market cap stands at $179.70 billion. As Abbott Laboratories is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth.
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Financial Strength of Abbott Laboratories
Investing in companies with poor financial strength carries a higher risk of permanent capital loss. Therefore, understanding a company's financial strength is crucial before investing in its stock. The cash-to-debt ratio and interest coverage offer a good starting point. Abbott Laboratories has a cash-to-debt ratio of 0.48, lower than 77.56% of companies in the Medical Devices & Instruments industry. The company's overall financial strength is ranked at 7 out of 10 by GuruFocus, indicating fair financial strength.
Profitability and Growth of Abbott Laboratories
Investing in profitable companies, especially those demonstrating consistent profitability over the long term, carries less risk. Abbott Laboratories has been profitable for 10 of the past 10 years. Over the past twelve months, the company had a revenue of $40.20 billion and Earnings Per Share (EPS) of $2.93. Its operating margin is 15.23%, ranking better than 75.27% of companies in the Medical Devices & Instruments industry. Overall, GuruFocus ranks Abbott Laboratories' profitability at 9 out of 10, indicating strong profitability.
Long-term stock performance is closely correlated with growth, according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Abbott Laboratories is 11.4%, ranking better than 61.27% of companies in the Medical Devices & Instruments industry. The 3-year average EBITDA growth is 16.4%, which ranks better than 61.68% of companies in the industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted cost of capital (WACC) is another way to evaluate its profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Abbott Laboratories' ROIC was 9.69, while its WACC came in at 7.67.
Conclusion
In conclusion, Abbott Laboratories (ABT, Financial) stock is believed to be modestly undervalued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 61.68% of 728 companies in the Medical Devices & Instruments industry. To learn more about Abbott Laboratories stock, you can check out its 30-Year Financials here.
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