Abbott Laboratories' (ABT) most recent earnings report reaffirms it's on schedule to fulfill its 2012 guidance, as well as completing its split into two profitable companies by the year's end. So far in 2012, Abbott has had vertical and horizontal growth in one of its flagship products, Humira. Abbott has also recently unveiled innovative and promising products from its device and diagnostics divisions, while building a robust pipeline of pharmaceuticals in conjunction with regulatory success as well. Below I will explain why shareholders should hold onto this asset for the long term to benefit from adequate dividends and increased wealth after the split, while interested investors should buy now before the stock price increases due to Abbott's continued success in the remainder of 2012 alongside the anticipation of the split.
Alongside Johnson & Johnson (JNJ), Pfizer (PFE), Merck (MRK) and GlaxoSmithKline (GSK), Abbott is among the most prominent pharmaceutical firms in the world with over $100 billion in market cap. Abbott currently has the second highest stock price among these five, currently trailing only Johnson & Johnson by around $2. All of these pharmas are less than 2% beneath their 52-week high, Abbott is the furthest at around 1.99%. Abbott has the lowest beta and the lowest PEG ratio among these top-tier pharmaceuticals. Abbott has the second highest sales growth over the past five years, trailing only Merck. However, Abbott does have the highest sales growth for the quarter year-over-year (YOY) among these five large-cap pharmas.
Abbott has a higher price to earnings ratio than Merck, Pfizer and GlaxoSmithKline, while its price to sales ratio is lowest among these five large-cap pharmas. Only GlaxoSmithKline has a higher price to book ratio than Abbott. Abbott has the lowest dividend yield, gross margin, operating margin and profit margin among these five large-cap pharmas. Abbott has a dividend yield of around 3.09%, this equates to an annual rate of $2.04. Abbott has a current ratio, quick ratio and debt to equity ratio of around 1.5, 1.3 and 0.46, respectively - these are all better than the corresponding ratios for GlaxoSmithKline. Abbott's stock has had the second best performance among these five pharmas YTD, trailing only Merck by less than 40 bps.
Recent Earnings Report
An overview of the recent earnings report shows that Abbott is on pace for fulfilling its 2012 guidance and it should split into Abbott Labs and AbbVie by the end of 2012. Abbott Labs will maintain a focus on generic drugs, nutritional products, medical devices and diagnostic equipment; this generates around $22 billion annually in sales. AbbVie will focus on research-based drug activities on areas like HIV treatments, multiple sclerosis and hepatitis C among others; this generates around $18 billion annually. Overall, in the second quarter, revenue increased by 2%, this is the smallest increase in quarterly revenue for Abbott throughout the past three years.
During the first quarter of 2012, Abbott's net sales were $19.2 billion, operating earnings were $3.68 billion and net earnings were $2.97 billion. Operating earnings and net earnings for the second quarter were $2.1 billion and $1.72 billion, respectively. Net sales in the second quarter totaled $9.81 billion; currency had a negative impact of 4.7%. Despite the negative impact of currency, many divisions reported growth during the second quarter. Proprietary Pharmaceutical sales increased by 4.9%, totaling $4.38 billion. This was mainly due to the 16.5% increase in Humira sales, totaling $2.3 billion.
In the second quarter, Humira sales increased by 27.9% in the U.S and by 8.4% internationally. Abbott's working on receiving approval on more indications for Humira in order increase its revenue potential. Sales growth from Androgel and Creon also contributed to the increase in revenue in the Proprietary Pharmaceutical division. Nutritionals totaled $1.6 billion; this was a 6.3% increase. Sales in the U.S increased by 13.1%, totaling $741 million and international sales increased 1%, totaling $843 million. Point of Care Diagnostics, Molecular Diagnostics and Core Laboratory and Diagnostics also posted growth during the second quarter.
Abbott currently has 20 products phase II or III. Acquiring Facet Biotech has helped Abbott improve its oncology portfolio. Abbott is developing products for Alzheimer's, Parkinson's, schizophrenia and multiple sclerosis as well. Abbott intends to file for FDA approval for its levodopa-carbidopa intestinal gel for Parkinson's by the end of 2012. Abbott is also having success in Phase III with bardoxolone, a product for chronic kidney disease. Abbott Japan recently received approval in Japan for an additional indication for Humira to be used on rheumatoid arthritis patients that have had rapid progression of structural damage without requiring the initial requirement of inadequate response to conventional therapy. This is a significant step forward for treating early-stage RA patients.
Abbott also recently received approval from the FDA on its Omnilink Elite Vascular Balloon-Expandable Stent System for patients with iliac artery disease. This is a significant addition to Abbott's already strong portfolio of products for peripheral artery disease. The stent uses a cobalt chromium alloy that is stronger than steel and optimal for long-term viability in patients. FDA recently approved both Abbott's Absolute Pro and Omnilink Elite stents because they were far below the primary endpoint goal in the clinical trials. In the U.S., 8 to 12 million people suffer from some form of peripheral artery disease.
Abbott unveiled a variety of innovative products at the American Association for Clinical Chemistry Lab Expo this summer. The One-Lab platform was by far the most impressive. This tool provides a single interface for automating routine procedures for managing and tracking information in order to reduce errors and improve patient safety, while increasing and expediting the probability for regulatory approval. One-Lab consists of the Smart Center, Inventory Manager and Decision Center applications. One-Lab will be a vital tool for almost every lab setting and will be launched during 2012 and 2013 in the U.S., France, Germany, Italy, Australia, Belgium and Ireland.
Abbott has proven to be a leader and major catalyst effectively driving innovation in both the pharmaceutical and medical device industries. Abbott's strong financials and dividend yield, abundance of promising products in its pipeline, sophisticated device launches, and anticipated split into two successful healthcare firms are reasons enough for shareholders to hold this asset long term, while interested investors should buy sometime in 3Q12, before 4Q12.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.