The last time I wrote about Abbott Laboratories (ABT) I stated that I would be buying a small lot of shares at that time because I felt the bearish sentiment was subsiding but felt it might drop due to the overall market. Since the last article it has lost 6.63% versus the 2.2% gain the S&P 500 (SPY) posted. Abbott Laboratories is engaged in the discovery, development, manufacture, and sale of a portfolio of science-based healthcare 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 $0.03. In the past year the company's stock is up 19.66%, excluding dividends (up 20.83% including dividends) and is losing to the S&P 500, which has gained 25.62% in the same time frame. With all this in mind, I'd like to take a moment to evaluate the stock on a fundamental, financial, and technical basis to see if it's worth buying more shares of the company right now for the healthcare sector of my dividend portfolio.
The company currently trades at a trailing 12-month P/E ratio of 21.98, which is fairly priced, but I mainly like to purchase a stock based on where the company is going in the future as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 17.8 is currently fairly priced for the future in terms of the right here, right now. The 1-year PEG ratio (2.11), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 1-year horizon), tells me that the company is expensively priced based on a 1-year EPS growth rate of 10.43%. In addition, the company has great long-term future earnings growth potential with a projected EPS growth rate of 12.24%. Below is a comparison table of the fundamentals metrics for the company for when I wrote all articles pertaining to the company.
EPS Next YR ($)
My 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 2.22% with a payout ratio of 49% of trailing 12-month earnings, while sporting return on assets, equity and investment values of 7.3%, 15% and 13.6%, respectively, which are all respectable values. Because I believe the market may get a bit choppy here and would like a safety play, I don't believe the 2.22% yield of this company is good enough for me to take shelter in for the time being. Below is a comparison table of the financial metrics for the company for when I wrote all articles pertaining to the company.
Payout TTM (%)
Looking first at the relative strength index chart [RSI] at the top, I see the stock near overbought territory with a value of 68.54 and upward trajectory. I will look at the moving average convergence-divergence [MACD] chart next. I see that the black line is above the red line with the divergence bars flattening out in height, indicating the bullish momentum is losing steam. As for the stock price itself ($39.35), I'm looking at $39.80 to act as resistance and $38.96 to act as support for a risk/reward ratio which plays out to be -1% to 1.14%.
- The company was upgraded to "overweight" from "equalweight" at Morgan Stanley (MS).
- The company will pay $5.5 million in a kickback case. This $5.5 million settlement is for allegations the company inappropriately paid doctors to talk about specific products while expecting the physicians to facilitate sales of the products to hospitals.
- Jefferies selects Abbott to its "Franchise Picks" list. Jefferies says that Abbott deserves a higher multiple because of their ability to grow margins.
The market has moved considerably higher in the past year and if you want a safety play then I believe the defensiveness of Abbott is one stock to be in during the first quarter, especially since earnings season is encroaching on us. Fundamentally the company is fairly priced based on future earnings and expensive on future growth potential. Financially it pays a low dividend yield, but I believe it can be increased significantly again in the future. Technically I see the stock reaching a maximum price around here based on the RSI and MACD charts. I'm going to avoid pulling the trigger here and wait to see how they report.
Disclaimer: This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!