by James Allen
Abbott Laboratories (ABT) is one of the most appealing companies in the pharmaceutical industry. There are a number of promising opportunities across the globe for Abbott. In addition, Abbott has a strong balance sheet, a healthy pipeline of promising pharmaceuticals and an aggressive plan to split into two prominent entities. Shareholders and investors should invest in Abbott now as its price continues to rise due to its expansive pipeline and organic growth throughout the remainder of the year.
Abbott's sales growth increased by more than 4 percent from the previous year, but declined by almost 9 percent from the previous quarter. Its beta is below .5, while the PEG ratio around 1.5. The current price is more than 12 times earnings; this has decreased from the trailing 12 months. Return on equity, operating margin and net margin has all increased over the last three quarters. Both the current ratio and quick ratio are around 1.5, while the debt to equity ratio has decreased marginally over the past three quarters. The dividend yield is around 3.2 percent and equates to over $2 annually.
Abbott's past and projected growth rates on an annual and 5-year basis either meet or exceed the industry average. The trailing price to earnings ratio is slightly higher than the industry average. The dividend yield and net profit margin are slightly lower than the industry average, while the return on equity is above the industry average. These strong financials on the balance sheet depict a healthy defensive asset that could be advantageous to have in the portfolio.
Abbott owns leading products in multiple sectors and has the most expansive global portfolio in the industry. Current operations are focused on the split into Abbott Laboratories and AbbVie by the end of 2012. It is also committed to additional buybacks and increased dividends for shareholders. Current shareholders will benefit from the split by ending up with shares in two promising healthcare entities by the end of 2012.These commitments and adequate balance sheet has almost every analyst rating Abbott as a buy right now.
Abbott has been outperforming estimates for some time, shareholders and investors should expect more increases in the stock price as opposed to dips throughout the remainder of the year. Aggressive operations, a promising pipeline and effective products help drive this stellar performance in the markets. Shareholders should expect the price to increase upwards until the split at the end of the year.
Abbott will continue to focus on the nutrition and healthcare lines while the new entity, AbbVie will head the pharmaceutical operations from the end of 2012 looking forward. With products like Januvia and Tykerb, competition in international pharmaceuticals is increasing from Merck (MRK) and GlaxoSmithKline (GSK), respectively. Both of these large cap pharmaceuticals are increasing the number of products and molecules in Phase III of their pipelines that apply to a broad spectrum of prominent ailments like diabetes and cancer in emerging markets.
However, both segments of the Abbott split should be able to continue to lead their respective sectors. The increasing opportunities in the nutrition and pharmaceuticals markets are partly due to the struggles Pfizer (PFE) is having with expiring patents and Johnson & Johnson (JNJ) is having in litigation.
These organizations will also be competing amongst each other as Abbott continues to expand its global portfolio in emerging markets. The potential growth Abbott has in emerging markets in conjunction with its dominant product line is the main differentiating factors from the competition. As Pfizer suffers from its looming patent expiration, Abbott gains strength from horizontal expansion of its premier brands.
Abbott's Humira is a leader in the industry, but it can also be used for several different types of ailments. This creates more earning opportunities, while mitigating R&D costs to develop and gain approval for new products. The prominence of Humira is one of the main reasons that the pharmaceutical segment AbbVie will continue to lead the industry after the split.
Abbott dedicates around 10 percent of sales revenue to R&D, this is one of the main reasons it continues to have an abundant pipeline of products to maintain its leadership position in the pharmaceutical industry. Abbott has a promising product, LCIG, for advanced onset of Parkinson disease that has already been approved in 40 different countries. Abbott is currently trying to get this product approved in the U.S, getting this past Phase III clinical trials would help improve Abbott's less stellar pharmaceutical market share in the U.S. Abbott's stronger lines in the U.S are its nutritional products and healthcare products. Its presence in emerging markets around the world is the most appealing proponent for Abbott's potential growth and prominence in the future.
Abbott has opportunities for its nutritional products to flourish in emerging markets like Brazil, China and India as well. India is an area of high growth due to its immense population, industrial actives and increasing proportion of people suffering from diabetes and malnutrition. Creating supplements and a reliable plan for assimilation here will create a blueprint for success to prosper in a number of emerging markets around the world. Shareholders should expect Abbott's price to increase as it experiences success in these parts of the world. There is room for growth in pharmaceuticals in the American market. On the aggregate, especially considering the split this year, Abbott is simply outpacing the competition like GSK in nutrition, healthcare and pharmaceuticals.
After reviewing the Q1 2012 earnings call, it's easy to understand why the price and valuations of Abbott will continue to increase throughout the year. Abbott is very much on schedule for the split into two leading healthcare companies at the end of the year. It's experiencing increasing margins in most of its product lines and segmented divisions. The nutrition division is expected to be the main proponent that will drive improved margins over the next few years.
Abbott has effective products in the market and in development for a variety of health needs including kidney diseases, oncology, immunology, Parkinson's, arthritis, dialysis, pancreatic enzymes, testosterone, vascular care and diabetes to name a few. Abbott has a growing market share in India, China, South America, North American and Europe as well. It's easily conceivable that even after the split, both Abbott and AbbVie will continue to be the leading organizations in their respective sectors.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.