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Until recently, Abbott Labs (ABT) was one of the most diversified players in the healthcare space.

Then in January, Abbott Laboratories completed a spin-off of AbbVie (ABBV). The company was essentially split in half, with each shareholder of the combined company gaining one share of each of the new entities.

The distinction between the companies is Abbott is now focused on nutritional products and generic drugs, while AbbVie is now a traditional drug maker built largely around Humira, a best-selling rheumatoid arthritis injection that produced $9.3 billion in revenue in 2012.

Or put another way, AbbVie is focused on the future, while the new Abbott is focused on the here and now.

AbbVie's two major drugs, both arthritis medications, are Humira and Androgel. The company has several products in the pipeline that would treat Hepatitis C, Parkinson's Disease, Multiple Sclerosis and Endometriosis. AbbVie's long-term plans indicate that their new products would be introduced in 2015, and until then it would depend on existing drugs for revenue. The new treatments are expected to generate an estimated $4 billion to $6 billion in revenue a year.

Meanwhile, the sales of Abbott's nutritional products in emerging economies are estimated to grow by 35% this year. Abbott's generic drugs are also key to growth in emerging markets. For example, generics make up 70% to 80% of the retail pharmaceutical market in India, according to McKinsey & Company. China's government is also pushing generic drugs as a way to lower the country's healthcare costs.

2012 Earnings Report

When the company announced its fourth-quarter and year-end earnings, which included the operations of AbbVie, two business categories showed the most improvement: point-of-care diagnostics and nutritionals, both of which now fall under the Abbott umbrella. Net sales for point-of-care diagnostics jumped 15.7% in 2012 compared to 2011, to $348 million. Nutritionals net sales grew 7.7% for all of 2012 and 10.2% for the fourth quarter compared to the same periods in the prior year. With nearly $6.5 billion in revenue, the business segment is probably the most important element to the new Abbott's continued success.

On the downside, Abbott's vascular sales fell around 8% for the quarter and full year. The primary culprit was U.S. sales, which dropped by 24.6% in the fourth quarter year-on-year and 20.7% for all of 2012. Established pharmaceuticals also experienced declines. Sales were down 2.4% for the fourth quarter and 4.4% for the year.

Earnings per share grew 23.6% from 2011 to 2012. Sales increased 2.6% for the full year and 4.4% for the quarter as compared to 2011.

The company is forecasting 2013 earnings above Wall Street expectations. Abbott expects full-year earnings per share of between $1.98 and $2.04, compared with analysts' previous expectations of $1.95.

New Products on the Horizon

The company says that it has more than 150 registration approvals and new product launches planned for this year for its established pharmaceuticals business. Abbott's medical device division will roll out several new products in 2013, including launching the Xience Xpedition drug-eluting stent in the U.S. this month and in Japan later this year. This system is extremely beneficial for people suffering from complex coronary anatomy.

The company is also high on the PLEX-ID system, which has the potential to change the way doctors identify and fight diseases. According to the company, it can identify and differentiate more than 750,000 bacteria, viruses, fungi and protozoa. One of the advantages of this system is that proper diagnosis can cut down on the over-prescribing of antibiotics.

In addition, an Abbott drug, Kaletra, was part of the treatment of a well-publicized case in which an infant girl was "cured" of HIV. While Kaletra makes up a small portion of Abbott's overall sales, that proportion could grow if it does in fact become part of a larger HIV treatment regime.

Abbott's sales are diversified throughout the world, with 30% of sales in the United States, 30% from other developed markets (Canada, Western Europe, Japan, and Australia) and 40% in emerging markets such as India, China, Russia and Brazil.

History of Dividends

Shares of Abbott are trading at a relatively low price-to-earnings ratio of 9.2, with a current price of $35.

The company's year-end balance sheet shows a long-term debt-to-equity ratio of 0.68. Its liquidity ratios are strong also, with a quick ratio of 1.7 and a current ratio of 2.4.

Abbott built up its cash position in the last year, from $6.81 billion at the end of 2011 to almost $11 billion at the conclusion of last year. Its income from continuing operations has skyrocketed from under $400 million in the fourth quarter of 2011 to almost $2 billion in the fourth quarter of 2012, basically a 500% increase in just over a year.

In February, Abbott declared a quarterly common dividend of 14 cents per share, which marked the 357th consecutive quarterly dividend to be paid by Abbott since 1924. The dividend is currently yielding 1.6%

Abbott has increased its dividend payout for 40 consecutive years and is a member of the S&P 500 Dividend Aristocrats Index, which tracks companies that have annually increased their dividend for 25 consecutive years.

One thing that will be tricky for investors is being able to benchmark this year's results against last year's because they won't have a baseline comparison of just the Abbott division until the first quarter of next year.

Since completion of the spin off, investors have been drawn to AbbVie since it now owns the key business segment and some flagship products. However, many analysts believe Abbott offers an attractive investment opportunity also. Its size, growth prospects, balance between its business units and diverse customer base make it well positioned. However, until it has had some experience operating without the AbbVie lines of business, most analysts have rated the stock as a hold.


Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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Source: Buy Abbott? Not So Fast