In the past couple of months, the company has bought a Chilean and Russian pharmaceutical company.
The stock is fairly valued on 2015 earnings estimates but is expensive on earnings growth expectations.
The dividend payout ratio is a bit high right now with respect to earnings.
The last time I wrote about Abbott Laboratories (NYSE:ABT) I stated, "Due to the bearish technicals, falling financial efficiency ratios, and reduced 2015 earnings estimates, I will not be adding to my position right here." Since writing the article, the stock has increased 6.75% versus the 6.12% 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 $0.05. In the past year, the company's stock is up 20.1% excluding dividends (up 22.05% including dividends) and is losing to the S&P 500, which has gained 23.6% in the same time frame. Since initiating my position back on May 28, 2013, I'm up 15.07% inclusive of reinvested dividends and dollar cost averaging. With all this in mind, I'd like to take a moment to evaluate the stock on a fundamental, financial and technical basis to see if right now is a good time to purchase more of the stock for my dividend portfolio.
The company currently trades at a trailing 12-month P/E ratio of 30.14, which is expensively priced, but I mainly like to purchase a stock based on where the company is going in the future as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 16.91 is currently fairly priced for the future in terms of the right here, right now. The 1-year PEG ratio (2.38), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 1-year horizon), tells me that the company is expensively priced based on a 1-year EPS growth rate of 12.69%. The company has great near-term future earnings growth potential with a projected EPS growth rate of 12.69%. In addition, the company has great long-term future earnings growth potential with a projected EPS growth rate of 11.86%. Below is a comparison table of the fundamental metrics for the company when I wrote all articles pertaining to the company.
EPS Next YR ($)
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 2.1% 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 2.1% yield of this company alone 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 in overbought territory with a current value of 72.79. 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 increasing in height, indicating bullish momentum. As for the stock price itself ($41.89), I'm looking at $42.31 to act as resistance, and $41.60 to act as support for a risk/reward ratio, which plays out to be -0.69% to 1%.
The company has been on a global hunt for acquisitions of late, first acquiring Chilean generics drug maker CFR Pharma back in May for $2.9 billion and now acquiring Russian pharmaceutical manufacturer Veropharm for a value between $395 million to $495 million. In actuality, Abbott is purchasing Garden Hills, a limited liability company that owns a controlling interest in Veropharm. The purchase will be taken from cash on the balance sheet and is expected to close some time during the fourth quarter of 2014. Veropharm's product portfolio consists of women's health, central nervous system, cardiovascular, gastroenterology, and oncology products.
Abbott is a company which makes about three quarters of its revenue outside of the United States. The company obviously sees that the world population is growing and making more money, therefore people are moving into the middle class and need health attention. I applaud the company for not sitting on their laurels but choosing to make things happen. I must admit, I've been debating for quite some time whether to sell out of Abbott or Covidien (COV) from the healthcare portion of my dividend portfolio, but the decision was made very easily for me by Medtronic a couple of weeks ago. I'll be holding on to this healthcare conglomerate for a while longer now.
The company recently declared a $0.22 per share quarterly dividend with an ex-date of 11Jul14 and pay date of 15Aug14 for a forward yield of 2.21% and is the main reason why I will be buying a smaller batch than usual next week. Fundamentally, I believe the stock to be fairly valued on next year's earnings estimates but expensive on growth expectations while next year's earnings estimates have started to increase again. In addition, the company has great near- and long-term earnings growth potential. Financially, the dividend is a bit small and the payout ratio is a bit high with respect to earnings. On a technical basis the risk/reward ratio is about equal, but I think it will continue to move up before it moves down. Like I said, I will only be buying a small batch this time around, only for the dividend. I think the entire market has shot up far too fast in too short of a time.
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: The author is long ABT, SPY. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.