Term Paper: Company Stock Analysis Abbott Laboratories ABT

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Abbott Labs Stock Analysis

ABBOTT LABORATORIES STOCK ANALYSIS

In the past few years, the stock performance of companies has demonstrated the potential success or failure of numerous companies competing in the same industry. The pharmaceutical industry is a highly saturated industry in which many global companies compete in. Abbott Laboratories is a research-based, global pharmaceutical company that discovers, develops, manufactures and markets leading prescription medicines as well as many of the world's best known consumer healthcare products. Abbot's products span the continuum of care, from nutritional products and laboratory diagnostics through medical devices and pharmaceutical therapies. Abbott is over 100 years old, and has 65,000 employees worldwide with sales, manufacturing, research and development, and distribution facilities around the world. The company has received numerous local, national and international distinctions for commitment to workplace excellence, with programs ranging from award-winning health care benefits to a variety of convenience and wellness services and long-term retirement benefits. This paper will provide an overview of Abbott Laboratories, it's position in the industry, and the extent of it's global operations. It will also analyze the company's stock, with a risk and return and valuation analysis.

Background of Abbott Laboratories & Operations

Abbott Laboratories manages a wide line of products and business lines. Abbott's pharmaceutical products include treatments for people with HIV; therapies for sufferers of rheumatoid arthritis; drugs for the treatment of people with migraines, epilepsy and mania associated with bipolar disorder; antibiotics; and specialized medicines for managing obesity, thyroid disease, high cholesterol and hypertension (Abbott Laboratories, 2007). In addition, Abbott is behind some of the world's most trusted names in infant, adult and healthy living nutritional products, including Similac, Ensure, Glucerna, AdvantEdge, Body-for-LIFE and ZonePerfect. In addition to these well-known consumer brands, Abbott also offers medical nutritional products and feeding devices for patients with special dietary needs due to injury or illnesses such as cancer, respiratory conditions and food allergies (Abbott Laboratories, 2007). The company's broad range of medical diagnostic instruments and tests are used worldwide in hospitals, reference labs, blood banks, physician offices, clinics and at home to diagnose a range of serious health issues such as infectious diseases, cancer, diabetes and genetic conditions, as well as monitor other important indicators of health.

Abbott's molecular diagnostics assist physicians detect genetic mutations in patients' genes and chromosomes to detect and manage disease. Abbott Laboratories also manufactures hand-held point of care diagnostics and blood glucose monitoring devices. The company's products include medical and surgical devices that improve the care of people with vascular disease and spinal conditions. Vascular offerings include vessel closure devices, carotid and coronary stents, catheters and other interventional tools and devices, and a growing line of specialized technologies for treating people with spinal diseases and injuries includes minimally invasive spinal fixation products (Abbot Laboratories, 2007). Finally, Abbott also offers veterinary products such as anesthetic and wound care products, nutritional supplements, and intravenous sets and solutions.

Abbott holds a competitive and prominent position in the pharmaceutical industry, and key competitors within the pharmaceutical market include Bayer AG, Merck, Pfzier, Eli Lilly and Novartis. Competition among competitors is intense with companies racing to launch new products before other companies release similar products. Abbott's extent of international operations is widespread, as the company markets its products in over 130 countries. Abbott's revenues for 2006 were at $22.5 billion, and continue to increase for 2007. Abbott has recently made other strategic decisions that will increase the revenue and company performance for the end of 2007. For example, in January of 2007, Abbott announced the sale of its core laboratory and point-of-care diagnostics business, including Abbott Point-of-Care, to GE for $8.1 billion in cash, resulting in approximately $6 billion in after-tax proceeds (Espicom, 2007). Abbott's in vitro diagnostics business, including point-of-care, generated sales of approximately $2.7 billion in 2006. According to pharmaceutical industry reports, Abbott's most significant event has been its acquisition of the Guidant businesses, which generated combined sales of over $1 billion in 2005 and had nearly 6,000 employees in three main locations: Santa Clara, California, USA; Temecula, California, USA; and Clonmel, Ireland.

Competition Affecting Abbott's Stock Value

Abbott Laboratories competes in a large industry that contains many similar giant competitors. Bayer AG, a German company, is another global pharmaceutical leader, whose primary objective is to sustainably increase enterprise value.

This company has faced more challenges than Abbott has in the past few years. Bayer's 2003 sales in the healthcare group declined by 5.3% to $8,871 million. Employment at Bayer decreased from 115,400 in 2003 by 7,200. 2003 proved to be an extremely challenging year for Bayer, with events surrounding Baycol in the United States causing considerable anxiety among stockholders. Baycol was withdrawn from the market in light of litigation involving serious side effects of the drug. Without acknowledging any liability, Bayer settled 2,224 Baycol cases in the United States, resulting in settlement payments totaling $842 million. Shareholder anxiety regarding Baycol was dispersed through individual meetings with both institutional and private investors and roadshows.

Merck & Company is also a global pharmaceutical and chemical company, and a soon to be former market leader in the laboratory distribution business. Merck's 2003 sales were $7,202 million, with sales in the pharmaceutical sector increasing by 4.8%. Merck's laboratory distribution accounted for 33% of their total sales. In 2003 Merck employed 34,206 individuals, with a -0.9-reduction rate from the previous year. Merck's research and development expenditure increased slightly to $605 million, one of the companies whose research and development budget come close to that of Abbott's. Merck's has decided to dispose of the laboratory distribution company in order to help eliminate financial debt, resulting in predictions of reduced sales. In 2004 Merck pulled its popular arthritis drug Vioxx off the market due to the increased risk of heart attack and stroke in patients. This move predicted revenue cuts by 11%. In the wake of the Vioxx news, Merck's shares fell from $45 to $31.67.

Eli Lilly is another pharmaceutical giant similar to Abbott. Eli Lilly employs 46,000 employees worldwide with approximately 8,800 employees engaged in research and development. Clinical research is conducted in more than 60 countries with research and development facilities located in 9 countries. In 2003 Eli Lilly's sales were $12,582.5 million, with a mission to maintain recognition as a leading, innovation driven company committed to developing a growing portfolio of best-in-class and first-class pharmaceutical products that help people live longer, healthier and more active lives. Finally, Novartis AG is another global leader that develops and manufactures pharmaceuticals and nutritional products.

Novartis' core businesses are pharmaceuticals, consumer health, generics, eye-care, and animal health. In 2003, sales were $24.9 billion with a net income of $5 billion. Approximately $3.8 billion was invested in research and development, Novartis has 78-500 employees which operate in over 140 countries around the world. Novartis' mission is to discover, develop and successfully market innovative products to cure diseases, to ease suffering and to enhance the quality of life. Novartis seeks to provide a shareholder return that reflects outstanding performance and to adequately reward those who invest ideas and work in the company.

Risk & Return Analysis on Abbott Laboratories Stock

An analysis of the risk and return on Abbott Laboratories stock over the past three years indicates that the company demonstrates strong growth, and innovative marketing potential with a promising pipeline of drugs, new acquisitions and strategic alliances. A review of the chart below indicates that different valuation models confirm Abbott's strong growth potential, rating the stock in a buy zone. An overview of the company's revenues for the last three years as related to stock risk and return is as follows:

Summary of Financial Data

Dollars in millions, except per share data)

Net Sales $

19,680.0 Cost of products sold $

8,884.2 Research and development to net sales %

8.6 Net cash from operating activities of continuing operations $

4,306.0 Capital expenditures $

1,291.6 Cash dividends declared per common share $

1.04 Common shares outstanding (in thousands)

1,560,024 Number of common shareholders

88,582 Number of employees

According to above chart, Abbott's stock is good, as it has steady, stable and sustainable pattern of measures over the three-year period. The manner in which the current stock price compares with the fair value also indicates that Abbott stock is at a good value. A review of the research indicates that all four valuation models (no growth, multistage growth model - high growth at 15% after five years 5% growth, and P/E model) confirm that Abbott has strong growth potential. The models indicate different opportunities of growth and a different value of the stock. According to those models, the value of the stock is much higher than the current price, which confirms that the stock has strong growth potential.

Du Pont Analysis of Abbott Laboratories

Abbott Laboratories can be analyzed utilizing the factors of the DuPont analysis. In the analysis below, only the financials for 2006 are computed. The other years are included for comparison purposes only. The financial figures used to compute the analysis… [END OF PREVIEW]

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