Abbott Labs Is a Healthy Investment - Barron's

In an otherwise sickly drug industry, Abbott Laboratories (ABT) stands out as the rare healthy company, writes Barron's Neil A. Martin. The pharmaceutical giant has been rolling out new products and posting double-digit profit gains. Shares could rise 40% over the next 18 months while the dividend should keep growing.

Abbott's shares are up 32% over the past three years, while health care stocks are down 15% as a group. This means the stock isn't cheap, trading at 15.3 times expected earnings for this year vs. the industry multiple of 12. Still, Abbott's main products are poised for strong growth and could push the stock up. Abbott also boasts a more diversified product base than many drug companies, and has relatively little exposure to patent expirations over the next few years.

Abbott execs are positive on the company's outlook, and CEO Miles White says "we are committed to double-digit earnings growth over the next several years." The company has several key product initiatives underway, including development of a new potential blockbuster in collaboration with AstraZeneca (AZN) and expansion of its opthalmology niche. White says the company is "focusing on discovering new treatments across a spectrum of therapeutic areas," including oncology, neuroscience and immunology.

• David R. Lewis, of Morgan Stanley, thinks Abbott will beat consensus earnings estimates in 2010 and 2011. His 12-month target is $67 vs. Friday's close of $55.
• Rick Helm, of Cohen & Steers Dividend Value fund, likes the company's consistent dividend growth. (Abbott has raised its dividend for 36 years and shows no signs of stopping now.) Helm expects the $1.44 dividend to grow nearly 10% this year and around 9% annually for the next few years. He sees a "40% upside in the stock based on the growth of the company's core businesses, lack of any significant generic competition in its key products and a pipeline that's not sexy but has a number of promising products."

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• Earlier this month, Premier Inc., a huge U.S. hospital purchasing group, inked new deals for drug-coated stents with Abbott and J&J (JNJ). Johnson, the coated stent pioneer, is finding itself playing second fiddle to ABT's Xience, which quickly vaulted to #1 after coming on the market last summer.
• Abbott Laboratories: Q4 EPS of $1.06 in-line. Revenue of $7.95B (+10.1%) vs. $7.99B. (PR)

Comments

[Marcap]

While on the surface Abbott certainly appears to be an excellent company, I would be very concerned about such a high dollar value (and percentage) of Intangible Assets on its Balance Sheet. Just how realistic is $10.1 Billion in Goodwill, and another $5.7 Billion in Other Intangibles? Remove both, and you're left with less than $2 Billion in S/H Equity to cover 1.55 Billion shares outstanding....and that equates to a pretty low net book value for a share trading at almost $55.00.

Nonetheless, even if the company's assets are all stated realistically, if the company continues to pay dividends as it has in the past, I fail to see any good reason for the stock to rise beyond its current price, at least not within the foreseeable future.

2009 Feb 16 12:29 AM