Abbott Laboratories (ABT) has been a leader in the healthcare and pharmaceutical industries for a long time now. Based on the fact that this company's dividends are solid and its revenues are stable, added to the intended spin off, Abbott is an ideal investment for those interested in investing in these industries. With its business strategically diversified into the pharmaceutical, medical, and nutritional industries, Abbott is here to stay.
Just recently, the shares of this giant company were hitting new 52-week highs but, after the company reported its earnings for the third quarter, its stock experienced a pullback. Even at this, there is every indication that the company's stock, within the next few days and weeks, will bounce back. Naturally, it would take a lot to fully convince most investors as to why they should consider buying Abbott. For this reason, I want investors to take the following factors into consideration.
Factor number one is based on the fact that presently the company's stock yields almost 3%. The company has also paid a dividend since 1924. The second factor is that since the company is concentrated primarily in the manufacture of healthcare products, even though times get extremely tough, there is every tendency that it would not experience a huge drop as far as its revenues are concerned. A consumer would rather cut back on his or her expenses on luxury items than cut back on healthcare. Factor number three borders on the company's balance sheet, which is confirmed to be very strong with a cash flow of around $11 billion and $18 billion in debt.
Here is another reason why investors should cash in on the current pullback in Abbott's stock: the company currently has plans to separate the company into two different publicly traded companies in a few months time. This means that there would be an increase in shareholder value. With the creation of the two separate companies, while Abbott handles the manufacture of consumer brands and medical devices and is expected to generate around $21 billion in revenues, the other company, AbbVie, will take care of the production of prescription medicines, with an expected revenue generation of around $18 billion. And finally, the company is not looking back when it comes to investing in research and development. This is an endeavor that is known to lead to the manufacture of new products, and at the same time, increase the future growth potential of a given company.
In 2011 alone, Abbott spent about $4.1 billion on R&D. The company has also announced positive data for prospective Hepatitis C treatment. Although this data for prospective Hepatitis C treatment is still in phase 2b, the Hepatitis C market is currently worth more than a billion in any given year. The company's revenue will surely experience a boost, if this potential drug for treatment of Hepatitis C finally sees the light of day. With all these facts, I don't think any investor in the health and pharmaceutical sector would need further promptings to start investing in Abbott Laboratories.
This brings us to Merck (MRK). The company is one of the largest drug manufacturers in the world. Not only does it manufacture pharmaceuticals, it also manufactures vaccines and some consumer health products. In the last four months, the company's shares have risen from the $37 it maintained in June to well over $47 per share currently. With its 52-week range between $32.31 to $47.99, earnings estimates for 2012 at $3.81 per share, earnings estimate for 2013 at $3.72 per share and annual dividend of $1.68 per share at 3.6% yields, it could be the right time for investors to take their profits and wait for a correction in the company's stock. The company recently reported third quarter earnings. Global sales amounted to $11.5 billion, a 4% decrease compared to the same quarter in 2011. Non-GAAP earnings per share increased to $0.95, while GAAP earnings came in at $0.56.
Now let's compare Abbott to another giant in the healthcare and pharmaceutical world, GlaxoSmithKline (GSK). Among the top rated pharmaceutical companies, GlaxoSmithKline has stayed ahead with a 223.8% EPS growth in 2012 and 8.78% projected growth for 2013. In comparison to the firms mentioned above, the company's 2.4 debt-to-equity ratio is rated as the highest. The company also has an annualized dividend of around $2.11 with a sustained increase of 3.6% in its stock as shown in its last earnings report. The company's recent earnings report showed a total of $8.3 billion in revenue for the second quarter, which is a decrease of 2% year-on-year (YOY). Its operating profit was $2.23 billion, a 1% decrease YOY. The company's sales in the U.S. declined 6%, while sales in Europe showed a decline of 8%. These declines were mostly as a result of discontinued production of certain brands, increase in generic competition and regulatory and macroeconomic headwinds. In Japan, the sales of pharmaceuticals and vaccines increased by 6%. There was a general increase of 7% in the sales of consumer healthcare products. It would also interest investors to know that GlaxoSmithKline has plans of launching about 8 new products in the next 2 years. These products include but not limited to treatments for HIV, type 2 diabetes and COPD.
Altria (MO) has continued to maintain sustainable dividend levels but the company really needs to work on reducing its debt. With its acquisition of a 27% stake of SAB Miller, it should also be working towards the evaluation of such an acquisition and to determine if the dividend can actually outgrow inflation.
Finally, I will make a mention of Pfizer (PFE), another major pharmaceutical company. With the company's newly approved drugs, Inlyta and Xalkori and the ones awaiting approval from FDA, it is estimated to generate aggregate revenues of $700 million in 2012, $2.2 billion in 2013, $3.2 billion in 2014, $4.3 billion in 2015 and $5.3 billion in 2016. This means that after 2013, the company's new products will greatly impact its revenue growth. Xalkori is among the couple of drugs that are expected to become blockbuster drugs from Pfizer.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.