The last time I wrote about Abbott Laboratories (ABT) I bought a big position in it stating, "I believe it to be a broken stock and not a broken company at this point." It had been down almost 10% on no news whatsoever. Since my last article it actually shot up 15.4% versus the 6.9% the S&P500 (SPY) posted. Abbott Laboratories is engaged in the discovery, development, manufacture, and sale of a portfolio of science-based health care products which operates in four segments: Diagnostics, Medical Devices, Nutritionals and Generic Pharmaceuticals. On October 16, 2013, the company reported third-quarter earnings of $0.55 per share, which beat the consensus of analysts' estimates by $0.03. Year to date, the company's stock is up 14.58% excluding dividends (up 16.16% including dividends), and is losing to the S&P 500, which has gained 21.32% in the same time frame. With all this in mind, I'd like to take a moment to evaluate the stock on a fundamental, financial, and technical basis to see if it's worth buying more shares of the company right now for the healthcare sector of my dividend growth portfolio.
The company currently trades at a trailing 12-month P/E ratio of 19.95, which is fairly priced, but I mainly like to purchase a stock based on where the company is going in the future as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 17.06 is currently fairly priced for the future in terms of the right here, right now. The 1-year PEG ratio (4.35), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 1-year horizon), tells me that the company is expensively priced based on a 1-year EPS growth rate of 10.81%. In addition, the company has great long-term future earnings growth potential with a projected EPS growth rate of 11.9%. Below is a comparison table of the fundamentals metrics for the company from the last time I wrote the article to now.
EPS Next YR ($)
Target Price ($)
EPS next YR (%)
On a financial basis, the things I look for are the dividend payouts, return on assets, equity and investment. The company pays a dividend of 2.31% with a payout ratio of 109% of trailing 12-month earnings while sporting return on assets, equity and investment values of 5.6%, 12.3% and 1.3%, respectively, which are all respectable values but nothing to go writing home about. Because I believe the market may get a bit choppy here and would like a safety play, I don't believe the 2.31% yield of this company is good enough for me to take shelter in for the time being. Below is a comparison table of the financials metrics for the company from the last time I wrote the article to now.
Payout TTM (%)
Looking first at the relative strength index chart [RSI] at the top, I see the stock muddling around in overbought territory with a value of 72.23. To confirm that, I will look at the moving average convergence-divergence [MACD] chart next and see that the black line is about even with the red line, but the divergence bars are decreasing in height, meaning we can trade with downward momentum in the stock. As for the stock price itself ($38.12), I'm looking at $38.58 to act as resistance and the 20-day moving average (currently at $36.82) to act as support for a risk/reward ratio, which plays out to be -3.41% to 1.21%.
- The Food & Drug Administration recently approved the company's MitraClip for heart valve leakage. The company is planning to utilize MitraClip for about 10% of the 300-350 thousand patients in the prohibitive risk for surgery category all while Wells Fargo's Larry Biegelsen expects U.S. sales of less than $200 million for the product. MitraClip is a noninvasive way of clamping a leaky heart valve.
- On 16Oct13 Abbott announced third quarter earnings of $0.55 per share on revenue of $5.37 billion. Wall Street was expecting earnings of $0.52 per share on $5.46 billion in revenue.
- The company increased its quarterly dividend by 57% to $0.22 per share. Also during the earnings calls the company affirmed fiscal year 2013 earnings of $1.98 to $2.04 while Wall Street is expecting $2.
Amid our government squabbling which occurred in October, Abbott reported a terrific number and provided us with a monster dividend boost. As I stated in early October before the earnings announcement, the stock was unfairly beaten up. I still believe it to be a great company but due to the earnings beat and subsequent 15% rise in the stock, I believe it is currently fairly valued on a fundamental basis. Financially, the dividend return on assets and equity are deteriorating from a month ago. On a technical basis I believe the stock to be in overbought territory and can see a pullback due to profit taking opportunities courtesy of the monster price appreciation in the past month. I will not be buying anymore shares at the current price due to the deteriorating return on equity, my belief the stock is fairly valued, and the stock being in overbought territory. It has just moved too far up too quickly.
Disclaimer: These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!