Abbott Laboratories: A Closer Look At The Split

| About: Abbott Laboratories (ABT)

Abbott Laboratories (NYSE:ABT) is a company that is involved in developing and manufacturing healthcare products. Abbott is the second largest marketer of diagnostic products worldwide. The company has five separate operation segments: Proprietary Pharmaceuticals Products, Established Pharmaceutical Products, Diagnostic Products, Nutritional Products, and Vascular Products. Abbott will be splitting its operations into two separate companies soon though, and it is uncertain what exactly will come from this move.

The following chart shows Abbott's five operation segments and their sales, incomes, and profit margins. Additional information can be found here.

2011 Data Sales ($B) Operating Income ($B) Profit Margin %
Proprietary Pharmaceutical Products 17 7.11 41.8%
Established Pharmaceutical Products 5.4 1.3 24.1%
Nutritional Products 6.06 0.797 13.2%
Diagnostic Products 4.126 0.766 18.6%
Vascular Products 3.333 0.96 28.8%

The split would create two different companies: Abbott Laboratories, which will remain an established pharmaceuticals division with nutritional, diagnostic, and vascular products, and AbbVie, which will consist of proprietary pharmaceuticals. This division will make Abbott Laboratories a $22-billion company and AbbVie about an $18-billion company.

Abbott's focus would be to expand geographically, continue to develop new technologies, and focus on accelerating the margins/cash flow. Abbott will have a higher growth rate because the focus of the company will be expanding business into emerging markets. AbbVie's focus would be to continue to grow it's leading brands, but with a more intense research focus and focus on maintaining business in developed markets.

Abbott has always been terrific at not only paying out a dividend, but expanding its dividend year after year. In fact, Abbott has increased its dividend payout for 40 consecutive years now and currently pays out a $2.04 dividend. The dividend amount is said to be split between the two companies when the company divides. The yield should remain the same, but the dividend amount would be valued at around a dollar per share.

This article just scratches the surface of the split coming for Abbott Laboratories, but it highlights some of the main details of the move. No major pharmaceutical company has returned more to its shareholders than Abbott, both short term and long term.

Abbott has outperformed all of its major peers including Mead Johnson Nutrition Company (NYSE:MJN), Johnson & Johnson (NYSE:JNJ), Medtronic Inc. (NYSE:MDT), Covidien Public Limited Company (COV), Baxter International Inc. (NYSE:BAX), Zimmer Holdings Inc. (ZMH), Becton, Dickson and Company (NYSE:BDX), C.R. Bard Inc. (NYSE:BCR), St. Jude Medical Inc. (NYSE:STJ), and Stryker Corporation (NYSE:SYK).

Although there is a lot of uncertainty on the division coming soon, investors can be confident that if any pharmaceutical company could pull off a split like this, Abbott would be the one to do it.

1-Year Total Return as of December 31, 2011: Abbott and Peer Group
ABT 21.8%


JNJ 9.8%
MDT 5.7%
COV 0.2%
BAX 0.0%
ZMH -0.5%
5-Year Total Return as of December 31, 2011: Abbott and Peer Group


BAX 17.3%
BDX 16.4%
JNJ 16.2%
BCR 7.1%
STJ -4.3%
SYK -5.6%

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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