Abbott Laboratories (ABT, Financial) recently experienced a daily loss of -0.88% and a 3-month loss of -11.26%. Despite these figures, the company's Earnings Per Share (EPS) stands at 2.94. This raises the question: is the stock modestly undervalued? In this article, we will delve into the valuation analysis of Abbott Laboratories, providing you with a comprehensive understanding of the company's financial position.
Company Overview
Abbott Laboratories (ABT, Financial) is a renowned manufacturer and marketer of medical devices, adult and pediatric nutritional products, diagnostic equipment, testing kits, and branded generic drugs. The company's vast product range includes pacemakers, implantable cardioverter defibrillators, neuromodulation devices, coronary stents, catheters, infant formula, nutritional liquids for adults, and more. Approximately 60% of the company's sales are generated outside the United States. With a current stock price of $95, Abbott Laboratories has a market cap of $164.90 billion, making it a significant player in the medical devices industry.
Understanding the GF Value
The GF Value is a unique measure of a stock's intrinsic value, calculated based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line represents the ideal fair trading value of the stock. If a stock's price is significantly above the GF Value Line, it is considered overvalued, and its future return is likely to be poor. Conversely, if the stock's price is significantly below the GF Value Line, it is deemed undervalued, and its future return is expected to be higher.
Based on the GF Value method, Abbott Laboratories (ABT, Financial) appears to be modestly undervalued. This suggests that the long-term return of its stock is likely to be higher than its business growth.
Financial Strength
Investing in companies with poor financial strength can pose a higher risk of permanent capital loss. Therefore, it is crucial to carefully examine a company's financial strength before deciding to invest in its stock. A good starting point for understanding a company's financial strength is by looking at its cash-to-debt ratio and interest coverage. Abbott Laboratories has a cash-to-debt ratio of 0.45, ranking it lower than 78.08% of 835 companies in the Medical Devices & Instruments industry. However, GuruFocus ranks the overall financial strength of Abbott Laboratories at 7 out of 10, indicating that its financial strength is fair.
Profitability and Growth
Investing in profitable companies carries less risk, especially for companies that have demonstrated consistent profitability over the long term. A company with high profit margins typically offers better performance potential than a company with low profit margins. Over the past 10 years, Abbott Laboratories has been profitable. In the last 12 months, the company generated revenues of $40 billion and Earnings Per Share (EPS) of $2.94. Its operating margin of 15.02% ranks it better than 75.75% of 829 companies in the Medical Devices & Instruments industry.
One of the most crucial factors in a company's valuation is its growth. Companies that grow faster create more value for shareholders. Abbott Laboratories' average annual revenue growth is 11.4%, ranking it better than 61.24% of 725 companies in the Medical Devices & Instruments industry. Its 3-year average EBITDA growth is 16.4%, which ranks it better than 61.46% of 724 companies in the same industry.
Return on Invested Capital Versus Weighted Average Cost of Capital
Another method to evaluate a company's profitability is to compare its Return on Invested Capital (ROIC) with its Weighted Average Cost of Capital (WACC). The ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. The WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. Ideally, the ROIC should be higher than the WACC. For Abbott Laboratories, the ROIC is 9.62, and the WACC is 8.16, indicating a healthy profitability ratio.
Conclusion
In conclusion, Abbott Laboratories (ABT, Financial) appears to be modestly undervalued. The company's financial condition is fair, its profitability is strong, and its growth ranks better than 61.46% of 724 companies in the Medical Devices & Instruments industry. To learn more about Abbott Laboratories stock, you can check out its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
