Abbott Labs Still Undervalued

Mar. 8.11 | About: Abbott Laboratories (ABT)

Increasingly, as goes Humira, a drug that treats rheumatoid arthritis and other immune systems disorders, so goes Abbott Laboratories (NYSE:ABT), and so news earlier this week that a federal appeals court had tossed out a $1.67 billion patent-infringement judgment against Abbott made the company’s shares all that more attractive.

YCharts Pro finds Abbott undervalued, with strong fundamentals, and the pharmaceutical maker pays an ever-rising dividend, having hiked the payout February 18 for the 39th consecutive year. The quarterly dividend goes to 48 cents, from 44, funded by Abbott’s steadily rising profit.

Investor neglect of the shares has pushed the dividend yield past 4%.

Abbott 2010 sales rose 14.3% to $35.2 billion, and Humira, with a 19.3% jump to $6.5 billion, was pushing the growth.

The company has also boosted R&D spending, and made acquisitions financed by borrowings, to keep the growth going. That has raised its debt-to-equity ratio.

But Humira, as YCharts wrote last fall, is Abbott’s crown jewel, competing against two other similar medicines. The three meds could reach combined annual sales of $33 billion by 2015, and as biotech drugs are less susceptible to generic knockoffs than plain chemical compounds.

Abbott shares rose, but barely, on the litigation news.

Perhaps investors figure $1.67 billion is chump change to Abbott, but anything questioning the legitimacy of its Humira patent protection could have hurt Abbott further. Johnson & Johnson (NYSE:JNJ) was the plaintiff – it makes Humira competitor Remicade – and it could still appeal the latest ruling. [A separate battle has raged over Remicade between J&J (JNJ) and Merck (NYSE:MRK)].

Abbott carries a relatively low PE ratio and a robust earnings yield – a handy way to compare corporate earnings to, say, a bond yield.

And with the latest ruling, there is one fewer reason not to own Abbott.