I believe ABT, at approximately $45/share offers value with a margin of safety on a cash flow valuation basis.
Abbott manufactures and markets pharmaceuticals, medical devices, blood glucose monitoring kits, and nutritional health-care products. Products include prescription drugs, coronary and carotid stents, and nutritional liquids for infants and adults. Following the Advanced Medical Optics acquisition, Abbott also markets eye-care products. Abbott generates slightly less than 60% of revenue from pharmaceuticals.
Recent free cash flows and noted growth rates:
Average Annual Growth: approx 15%
CAGR: approx. 13%
Consensus Forecast Industry 5-Year Growth: approx. 10% per year
Consensus Forecast Company 5-Year Growth: approx. 9% per year
Assuming the company achieves a lower 5-year growth rate of 5% per year, and assuming that after the next five years, the company achieves no growth or 0% growth per year forever:
Discounted Cash Flow Valuation
|Year||FCF $ Millions|
The firm's future cash flows, discounted at a WACC of 8.60%, give a present value for the entire firm (Debt + Equity) of $108,077 million. If the firm's fair value of debt is estimated at $20,000 million, then the fair value of the firm's equity could be $88,077 million.$88,077 million / 1550 million outstanding shares is approx $57 per share. A 20% margin of safety from here is approx $45 so assuming all else at ABT meets my standard for good business, I'd buy it today for the long term at $45 or less.
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.