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Summary

  • The stock is fairly valued based on 2015 earnings estimates, but has great long-term earnings growth potential.
  • The financial efficiency ratios have decreased after reporting first quarter earnings last month.
  • The stock is experiencing bearish technicals.

The last time I wrote about Abbott Laboratories (NYSE:ABT) I stated, "Due to the bullish technicals, great near-term earnings growth potential, and great long-term earnings growth potential, I'm going to be pulling the trigger on a very small batch of this particular name right now." After the writing the article, the stock increased 2.87% versus the 1.88% gain the S&P 500 (NYSEARCA:SPY) posted. Abbott 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 April 16, 2014, the company reported first quarter earnings of $0.41 per share, which beat the consensus of analysts' estimates by $0.05. In the past year, the company's stock is up 7.99% excluding dividends (up 9.94% including dividends) and is losing to the S&P 500, which has gained 14.94% in the same timeframe. 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.

Fundamentals

The company currently trades at a trailing 12-month P/E ratio of 28.1, 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 15.87 is currently fairly priced for the future in terms of the right here, right now. The 1-year PEG ratio (2.35), 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 11.96%. The company has great near-term future earnings growth potential with a projected EPS growth rate of 11.96%. In addition, the company has great long-term future earnings growth potential with a projected EPS growth rate of 11.51%. Below is a comparison table of the fundamental metrics for the company for when I wrote all articles pertaining to the company.

Article Date

Price ($)

TTM P/E

Fwd P/E

EPS Next YR ($)

My Target Price ($)

PEG

EPS next YR (%)

09Sep13

33.50

13.34

15.02

2.23

33

1.18

11.22

09Oct13

33.03

13.22

14.89

2.23

33

1.11

11.07

10Nov13

38.12

19.95

17.06

2.23

33

1.85

10.81

10Dec13

37.11

20.62

16.67

2.23

33

1.95

10.58

10Jan14

39.49

21.98

17.80

2.22

33

2.11

10.43

10Feb14

37.16

24.45

15.04

2.47

37

1.98

12.37

15Apr14

37.97

24.98

15.37

2.47

37

2.01

12.42

16May14

39.06

28.10

15.87

2.46

37

2.35

11.96

Financials

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 2.25% with a payout ratio of 63% of trailing 12-month earnings while sporting return on assets, equity and investment values of 6.9%, 12.5% and 8%, 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 2.25% 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 when I wrote all articles pertaining to the company.

Article Date

Yield (%)

Payout TTM (%)

ROA (%)

ROE (%)

ROI (%)

09Sep13

1.67

36.3

7.4

16.3

1.3

09Oct13

1.69

36.3

7.4

16.3

1.3

10Nov13

2.31

109

5.6

12.3

1.3

10Dec13

2.37

49

7.3

15.0

13.6

10Jan14

2.22

49

7.3

15.0

13.6

10Feb14

2.37

58

8.4

17.4

5.2

15Apr14

2.32

58

7.2

13.3

8.0

16May14

2.25

63

6.9

12.5

8.0

Technicals

(click to enlarge)

Looking first at the relative strength index chart [RSI] at the top, I see the stock muddling in middle-ground territory with a current value of 54.11 and downward 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 decreasing in height, indicating bearish momentum. As for the stock price itself ($39.06), I'm looking at $39.79 to act as resistance and the 20-day simple moving average (currently $38.81) to act as support for a risk/reward ratio, which plays out to be -0.64% to 1.87%.

Recent News

  1. The company purchased CFR Pharma, a Chilean generics drug manufacturer. The purchase was worth $2.9 billion in cash, and Abbott will take over CFR's $430 million in debt. Abbott estimates $900 million will be added to the top line in 2015 due to the transaction.
  2. Abbott is working to develop a molecular diagnostic test for Idera Pharmaceuticals (NASDAQ:IDRA). The diagnostic test will be used for Idera's cancer drug IMO-8400 and will add to the plethora of revenue streams attributed to Abbott.
  3. The company reported first quarter earnings that beat on the bottom line but missed on the top line. Earnings were $0.41 per share on revenue of $5.24 billion versus expectations of $0.36 per share on revenue of $5.29 billion.

Conclusion

Abbott has a pretty decent dividend here if you're a bit scared of the market volatility going on right now. Fundamentally, this company is fairly valued on next year's earnings estimates but expensive on earnings growth potential, while short and long-term earnings growth expectations are excellent. However, earnings estimates for 2015 have been reduced by a penny from last month. Financially, this is a low yielding dividend company that is well supported, but the financial efficiency ratios have decreased. Technically, the stock dropped from overbought territory back on 14May14 and has some bearish momentum. Due to the bearish technicals, falling financial efficiency ratios, and reduced 2015 earnings estimates, I will not be adding to my position right here.

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!

Source: Abbott's Dividend Is Well Supported By Earnings, But Is It A Buy?