Entering text into the input field will update the search result below

Abbott Laboratories: valuation update

Feb. 27, 2011 11:12 PM ETABT2 Comments
Eric Cota profile picture
Eric Cota's Blog
32 Followers
Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

Abbott Laboratories ($ABT) filed a 10K annual report for 2010 recently so here's an update to the cash flow valuation I posted January 31. This update incorporates the firm's year-end 2010 data. I believe $ABT is undervalued now at $48/share and fairly valued at $89/share 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.


I estimated the firm's WACC today at 6.32% using the Capital Asset Pricing Model and the company's recent SEC filings.
Recent free cash flows and noted growth rates:
Year FCF $Millions
2000 2064
2001 2403
2002 2887
2003 2500
2004 3116
2005 3967
2006 3991
2007 3528
2008 6056
2009 6186
2010 7721
Average Annual Growth: approx 16%
CAGR: approx. 14%
Consensus Forecast Industry 5-Year Growth: approx. 12% per year
Consensus Forecast Company 5-Year Growth: approx. 9% per year
Assuming the company achieves a 5-year growth rate in FCF of 5% per year, and assuming that after the next five years, the company achieves no growth in FCF or 0% growth per year forever:
Discounted Cash Flow Valuation
Year FCF $ Millions
0 7721
1 8107
2 8512
3 8938
4 9385
5 9854
Terminal Value 163604
The firm's future cash flows, discounted at a WACC of 6.32%, give a present value for the entire firm (Debt + Equity) of $157,587 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 $137,587 million. $137,587 million / 1550 million outstanding shares is approximately $89 per share and a 20% margin of safety is $71/share.
All else being equal and assuming a higher WACC of 9.00%, the fair value for $ABT is $58/share and a 20% margin of safety is $46/share.

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

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.

Recommended For You