The last time I wrote about Abbott Laboratories (NYSE:ABT) I stated, "I'm going to avoid pulling the trigger here and wait to see how they report." Since the last article it dropped 6.09% versus the 2.31% drop the S&P 500 (NYSEARCA: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 January 22, 2014, the company reported fourth quarter earnings of $0.58 per share, which was in-line with the consensus of analysts' estimates. In the past year the company's stock is up 7.99% excluding dividends (up 9.72% including dividends), and is losing to the S&P 500, which has gained 18.57% in the same time frame. With all this in mind, I'd like to take a moment to evaluate the stock on a fundamental, financial and technical basis to see if it's worth buying more shares of the company right now for the healthcare sector of my dividend portfolio.
The company currently trades at a trailing 12-month P/E ratio of 24.45, which is fairly priced, but I mainly like to purchase a stock based on where the company is going in the future as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 15.04 is currently fairly priced for the future in terms of the right here, right now. The 1-year PEG ratio (1.98), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 1-year horizon), tells me that the company is fairly priced based on a 1-year EPS growth rate of 12.37%. The company has great near-term future earnings growth potential with a projected EPS growth rate of 12.37%. In addition, the company has great long-term future earnings growth potential with a projected EPS growth rate of 11.7%. Below is a comparison table of the fundamentals metrics for the company for when I wrote all articles pertaining to the company.
EPS Next YR ($)
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 2.37% with a payout ratio of 58% of trailing 12-month earnings while sporting return on assets, equity and investment values of 8.4%, 17.4% and 5.2%, 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 2.37% 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 bouncing off of oversold territory back at the end of January with a current value of 48.43. I will look at the moving average convergence-divergence [MACD] chart next. I see that the black line is just about to cross the red line with the divergence bars increasing in height, indicating some bullish momentum. As for the stock price itself ($37.16), I'm looking at $39.13 to act as resistance and the 200-day simple moving average (currently $36.08) to act as support for a risk/reward ratio which plays out to be -2.91% to 5.31%.
- The company reported earnings on 22Jan14 with earnings of $0.58 per share which was in-line with analysts' estimates and $5.65 billion which missed estimates by $70 million.
- The company announced it plans to increase the share repurchases in 2014 to over $2 billion.
Abbott is a good defensive company with a solid dividend yield and will grow slowly over time. Fundamentally the company is fairly priced based on future earnings and on future growth potential. Financially the dividend is secure and return on equity is increasing. On a technical basis I believe there is some bullish momentum. Due to the bullish technicals, high increasing return on equity, and great near-term earnings growth potential I'm going to be pulling the trigger on a very small batch of this particular name right now.
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!
Disclosure: I am long ABT, SPY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.