Abbott Laboratories (NYSE:ABT) is engaged in discovery, development, manufacture and sale of diversified healthcare products. In latest fiscal year its total earnings was $5.7B and revenue of $30.76B. The compounded annual growth(CAGR) rate of revenue for last four year stands at 8.2% and management delivered consistent improvement in YoY profit margin. At present its share price is hovering around $46.4 with 52 weeks ranging from $43.2 to $56.7. At its current share price near its 52 week, PE ratio of 13.62 and dividend yield of 3.79%, the stock represents an attractive opportunity for long term investment.
In last fiscal year, company posted total earnings of $30.7B which represent 4.1% growth over prior fiscal year. Due to good growth in revenue it generated record operating cash flow of more than $7B. Management is committed to increase shareholder value through dividend payment and stock repurchase. In latest fiscal year it returned nearly $2.5B to shareholders in the form of dividend representing 11% increase over prior year of dividend payment. Company has broadened its medical product businesses by entering vision care market with Advanced Medical Optics. It spends significant capital in R&D effort with total R&D spending at $2.7B across research pipeline programs to help sustain its performance. Its vascular business has most robust pipeline in the industry, management has confirmed that it expect to launch ten new technologies over the next five year. Its balance sheet is robust; it carries $8.8B of cash and total liquid assets is worth of $9.9B. In latest fiscal year management delivered 27% return on equity and 8.88% return on sales. The overall annual performance is as given below:
Abbott Annual Performance (source: finance Google)
In Q1 2010, total revenue increased by 15% to $7.7B. The impressive 15% growth came from 12%-16% revenue growth in its four operating segments - Pharmaceutical Products, Diagnostic Products, Nutritional Products and Vascular Products. The EPS growth was 11% which rose from $0.73 to $0.81. Its quarterly performance is as given below:
Abbott Quarterly Performance (source: Finance Google)
Positive Attributes:
Excellent value to Shareholders: Abbott is a good dividend paying stock, it has been paying dividend since last 37 year and current dividend yield stands at 3.79%. In latest fiscal year it paid $2.5B to shareholders through dividend payment. Overall growth can be assessed by below chart:
Annual Dividend payment (Source: 10 K report)
Strong presence in international market: In latest fiscal year its 53.89% of revenue came from international market which includes key markets like Japan and Germany. Its international sale is growing at a faster pace and help in achieving stronger revenue growth during the current fiscal year
Focus on emerging market: Abbott bought Solvay pharmaceuticals to expand its presence in Eastern Europe and emerging economies. This acquisition has added $2.9B of revenue to its annual sales. It also added $500M incremental R&D capacity. Recently it acquired India based pharmaceutical firm Piramal Healthcare limited by paying $2.12B. Management expects that this acquisition will boost 2010 EPS.
Risk:
High debt on books: Abbott is carrying a total $11.2B as long term debt. With increasing number of acquisition and higher operational cost may lead to further increase in debt and higher financial risk.
Expensive Pension plans: In 2009, $700M was funded to the main domestic pension plan.
Foreign Currency Risk: It receives over 50% revenue from international markets and hence exposed to currency fluctuation risks. To mange foreign currency risks it takes huge position in foreign currency forward contracts. In 2009 the total value of foreign currency forward exchange was $7.5B. In 2008 there was a significant loss due to this position and thus poses a serious risk.
Overall Abbott has been a consistent player and a good dividend paying stock. Its dividend history has been consistent and reliable. At current dividend yield of 3.79% and share price of $46.4, it could be a good long term investment.
