Intrinsic value of Abbott Laboratories - ABT

Previous Close

$56.32

  Intrinsic Value

$300.59

stock screener

  Rating & Target

str. buy

+434%

  Value-price divergence*

+1360%

Previous close

$56.32

 
Intrinsic value

$300.59

 
Up/down potential

+434%

 
Rating

str. buy

 
Value-price divergence*

+1360%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of ABT stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 97.8

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  2.20
  24.50
  22.55
  20.80
  19.22
  17.79
  16.51
  15.36
  14.33
  13.39
  12.55
  11.80
  11.12
  10.51
  9.96
  9.46
  9.01
  8.61
  8.25
  7.93
  7.63
  7.37
  7.13
  6.92
  6.73
  6.56
  6.40
  6.26
  6.13
  6.02
  5.92
Revenue, $m
  20,853
  25,962
  31,816
  38,433
  45,818
  53,970
  62,883
  72,544
  82,938
  94,046
  105,853
  118,343
  131,502
  145,320
  159,789
  174,906
  190,674
  207,097
  224,187
  241,958
  260,430
  279,625
  299,573
  320,304
  341,855
  364,265
  387,578
  411,840
  437,102
  463,418
  490,845
Variable operating expenses, $m
 
  7,341
  8,823
  10,498
  12,367
  14,431
  16,688
  19,133
  21,764
  24,577
  27,566
  29,959
  33,291
  36,789
  40,452
  44,279
  48,270
  52,428
  56,754
  61,253
  65,929
  70,789
  75,839
  81,087
  86,543
  92,216
  98,118
  104,260
  110,655
  117,317
  124,260
Fixed operating expenses, $m
 
  12,205
  12,510
  12,823
  13,143
  13,472
  13,808
  14,154
  14,508
  14,870
  15,242
  15,623
  16,014
  16,414
  16,824
  17,245
  17,676
  18,118
  18,571
  19,035
  19,511
  19,999
  20,499
  21,011
  21,536
  22,075
  22,627
  23,192
  23,772
  24,367
  24,976
Total operating expenses, $m
  17,668
  19,546
  21,333
  23,321
  25,510
  27,903
  30,496
  33,287
  36,272
  39,447
  42,808
  45,582
  49,305
  53,203
  57,276
  61,524
  65,946
  70,546
  75,325
  80,288
  85,440
  90,788
  96,338
  102,098
  108,079
  114,291
  120,745
  127,452
  134,427
  141,684
  149,236
Operating income, $m
  3,185
  6,417
  10,484
  15,112
  20,307
  26,067
  32,387
  39,257
  46,666
  54,599
  63,046
  72,761
  82,198
  92,117
  102,513
  113,383
  124,728
  136,551
  148,862
  161,670
  174,989
  188,838
  203,235
  218,206
  233,776
  249,974
  266,833
  284,387
  302,674
  321,734
  341,609
EBITDA, $m
  4,538
  8,115
  12,392
  17,258
  22,717
  28,770
  35,409
  42,625
  50,406
  58,738
  67,607
  77,002
  86,910
  97,325
  108,239
  119,650
  131,560
  143,972
  156,895
  170,340
  184,321
  198,857
  213,970
  229,683
  246,026
  263,027
  280,721
  299,145
  318,337
  338,340
  359,197
Interest expense (income), $m
  181
  724
  960
  1,259
  1,598
  1,977
  2,394
  2,851
  3,346
  3,878
  4,447
  5,052
  5,691
  6,365
  7,073
  7,814
  8,588
  9,396
  10,237
  11,113
  12,023
  12,969
  13,952
  14,974
  16,036
  17,139
  18,287
  19,481
  20,724
  22,018
  23,366
Earnings before tax, $m
  1,413
  5,693
  9,524
  13,853
  18,709
  24,091
  29,993
  36,407
  43,320
  50,721
  58,599
  67,709
  76,507
  85,752
  95,440
  105,569
  116,139
  127,155
  138,625
  150,557
  162,966
  175,869
  189,283
  203,232
  217,740
  232,835
  248,546
  264,906
  281,950
  299,716
  318,243
Tax expense, $m
  350
  1,537
  2,572
  3,740
  5,051
  6,505
  8,098
  9,830
  11,696
  13,695
  15,822
  18,282
  20,657
  23,153
  25,769
  28,504
  31,358
  34,332
  37,429
  40,650
  44,001
  47,485
  51,106
  54,873
  58,790
  62,865
  67,107
  71,525
  76,127
  80,923
  85,926
Net income, $m
  1,400
  4,156
  6,953
  10,113
  13,657
  17,586
  21,895
  26,577
  31,624
  37,027
  42,777
  49,428
  55,850
  62,599
  69,671
  77,065
  84,782
  92,823
  101,196
  109,907
  118,965
  128,384
  138,177
  148,359
  158,950
  169,969
  181,438
  193,381
  205,824
  218,793
  232,317

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  18,775
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  52,666
  42,215
  51,734
  62,492
  74,500
  87,757
  102,249
  117,958
  134,858
  152,921
  172,119
  192,428
  213,825
  236,292
  259,819
  284,401
  310,039
  336,744
  364,532
  393,428
  423,463
  454,675
  487,110
  520,820
  555,862
  592,301
  630,208
  669,658
  710,734
  753,524
  798,122
Adjusted assets (=assets-cash), $m
  33,891
  42,215
  51,734
  62,492
  74,500
  87,757
  102,249
  117,958
  134,858
  152,921
  172,119
  192,428
  213,825
  236,292
  259,819
  284,401
  310,039
  336,744
  364,532
  393,428
  423,463
  454,675
  487,110
  520,820
  555,862
  592,301
  630,208
  669,658
  710,734
  753,524
  798,122
Revenue / Adjusted assets
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
  0.615
Average production assets, $m
  10,768
  13,396
  16,417
  19,831
  23,642
  27,849
  32,448
  37,433
  42,796
  48,528
  54,620
  61,065
  67,855
  74,985
  82,451
  90,252
  98,388
  106,862
  115,681
  124,850
  134,382
  144,287
  154,580
  165,277
  176,397
  187,961
  199,990
  212,509
  225,544
  239,123
  253,276
Working capital, $m
  20,116
  2,752
  3,373
  4,074
  4,857
  5,721
  6,666
  7,690
  8,791
  9,969
  11,220
  12,544
  13,939
  15,404
  16,938
  18,540
  20,211
  21,952
  23,764
  25,648
  27,606
  29,640
  31,755
  33,952
  36,237
  38,612
  41,083
  43,655
  46,333
  49,122
  52,030
Total debt, $m
  21,552
  27,417
  35,985
  45,667
  56,474
  68,405
  81,448
  95,586
  110,796
  127,053
  144,332
  162,609
  181,866
  202,087
  223,261
  245,384
  268,459
  292,493
  317,503
  343,509
  370,541
  398,632
  427,823
  458,162
  489,700
  522,495
  556,611
  592,116
  629,085
  667,596
  707,733
Total liabilities, $m
  32,128
  37,993
  46,561
  56,243
  67,050
  78,981
  92,024
  106,162
  121,372
  137,629
  154,908
  173,185
  192,442
  212,663
  233,837
  255,960
  279,035
  303,069
  328,079
  354,085
  381,117
  409,208
  438,399
  468,738
  500,276
  533,071
  567,187
  602,692
  639,661
  678,172
  718,309
Total equity, $m
  20,538
  4,221
  5,173
  6,249
  7,450
  8,776
  10,225
  11,796
  13,486
  15,292
  17,212
  19,243
  21,382
  23,629
  25,982
  28,440
  31,004
  33,674
  36,453
  39,343
  42,346
  45,468
  48,711
  52,082
  55,586
  59,230
  63,021
  66,966
  71,073
  75,352
  79,812
Total liabilities and equity, $m
  52,666
  42,214
  51,734
  62,492
  74,500
  87,757
  102,249
  117,958
  134,858
  152,921
  172,120
  192,428
  213,824
  236,292
  259,819
  284,400
  310,039
  336,743
  364,532
  393,428
  423,463
  454,676
  487,110
  520,820
  555,862
  592,301
  630,208
  669,658
  710,734
  753,524
  798,121
Debt-to-equity ratio
  1.049
  6.490
  6.960
  7.310
  7.580
  7.790
  7.970
  8.100
  8.220
  8.310
  8.390
  8.450
  8.510
  8.550
  8.590
  8.630
  8.660
  8.690
  8.710
  8.730
  8.750
  8.770
  8.780
  8.800
  8.810
  8.820
  8.830
  8.840
  8.850
  8.860
  8.870
Adjusted equity ratio
  0.078
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  1,400
  4,156
  6,953
  10,113
  13,657
  17,586
  21,895
  26,577
  31,624
  37,027
  42,777
  49,428
  55,850
  62,599
  69,671
  77,065
  84,782
  92,823
  101,196
  109,907
  118,965
  128,384
  138,177
  148,359
  158,950
  169,969
  181,438
  193,381
  205,824
  218,793
  232,317
Depreciation, amort., depletion, $m
  1,353
  1,699
  1,908
  2,145
  2,410
  2,702
  3,022
  3,368
  3,740
  4,138
  4,561
  4,241
  4,712
  5,207
  5,726
  6,267
  6,832
  7,421
  8,033
  8,670
  9,332
  10,020
  10,735
  11,478
  12,250
  13,053
  13,888
  14,758
  15,663
  16,606
  17,589
Funds from operations, $m
  1,690
  5,854
  8,861
  12,258
  16,068
  20,289
  24,917
  29,945
  35,364
  41,165
  47,339
  53,668
  60,562
  67,806
  75,397
  83,333
  91,614
  100,244
  109,229
  118,577
  128,298
  138,404
  148,911
  159,837
  171,200
  183,022
  195,327
  208,139
  221,487
  235,398
  249,906
Change in working capital, $m
  -1,513
  542
  621
  701
  783
  864
  945
  1,024
  1,102
  1,178
  1,252
  1,324
  1,395
  1,465
  1,534
  1,602
  1,671
  1,741
  1,812
  1,884
  1,958
  2,035
  2,114
  2,198
  2,284
  2,375
  2,471
  2,572
  2,678
  2,789
  2,907
Cash from operations, $m
  3,203
  5,313
  8,240
  11,557
  15,285
  19,424
  23,972
  28,921
  34,262
  39,987
  46,087
  52,345
  59,167
  66,342
  73,863
  81,730
  89,943
  98,504
  107,418
  116,693
  126,340
  136,369
  146,797
  157,639
  168,916
  180,647
  192,856
  205,567
  218,809
  232,609
  246,998
Maintenance CAPEX, $m
  0
  -748
  -930
  -1,140
  -1,377
  -1,642
  -1,934
  -2,253
  -2,600
  -2,972
  -3,370
  -3,793
  -4,241
  -4,712
  -5,207
  -5,726
  -6,267
  -6,832
  -7,421
  -8,033
  -8,670
  -9,332
  -10,020
  -10,735
  -11,478
  -12,250
  -13,053
  -13,888
  -14,758
  -15,663
  -16,606
New CAPEX, $m
  -1,121
  -2,628
  -3,021
  -3,414
  -3,811
  -4,207
  -4,599
  -4,985
  -5,363
  -5,732
  -6,093
  -6,445
  -6,790
  -7,130
  -7,466
  -7,801
  -8,136
  -8,475
  -8,818
  -9,170
  -9,531
  -9,905
  -10,293
  -10,697
  -11,120
  -11,564
  -12,029
  -12,519
  -13,035
  -13,579
  -14,152
Cash from investing activities, $m
  -248
  -3,376
  -3,951
  -4,554
  -5,188
  -5,849
  -6,533
  -7,238
  -7,963
  -8,704
  -9,463
  -10,238
  -11,031
  -11,842
  -12,673
  -13,527
  -14,403
  -15,307
  -16,239
  -17,203
  -18,201
  -19,237
  -20,313
  -21,432
  -22,598
  -23,814
  -25,082
  -26,407
  -27,793
  -29,242
  -30,758
Free cash flow, $m
  2,955
  1,937
  4,289
  7,003
  10,097
  13,576
  17,439
  21,682
  26,300
  31,283
  36,624
  42,107
  48,137
  54,500
  61,190
  68,204
  75,539
  83,197
  91,179
  99,490
  108,138
  117,132
  126,484
  136,207
  146,318
  156,833
  167,773
  179,160
  191,016
  203,367
  216,240
Issuance/(repayment) of debt, $m
  13,155
  6,736
  8,567
  9,682
  10,807
  11,931
  13,043
  14,138
  15,210
  16,257
  17,279
  18,278
  19,257
  20,221
  21,174
  22,123
  23,075
  24,034
  25,009
  26,006
  27,031
  28,091
  29,192
  30,339
  31,538
  32,795
  34,116
  35,505
  36,969
  38,511
  40,137
Issuance/(repurchase) of shares, $m
  -274
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  12,686
  6,736
  8,567
  9,682
  10,807
  11,931
  13,043
  14,138
  15,210
  16,257
  17,279
  18,278
  19,257
  20,221
  21,174
  22,123
  23,075
  24,034
  25,009
  26,006
  27,031
  28,091
  29,192
  30,339
  31,538
  32,795
  34,116
  35,505
  36,969
  38,511
  40,137
Total cash flow (excl. dividends), $m
  15,158
  8,673
  12,857
  16,685
  20,904
  25,507
  30,482
  35,820
  41,509
  47,540
  53,903
  60,385
  67,394
  74,720
  82,364
  90,327
  98,614
  107,231
  116,188
  125,496
  135,170
  145,223
  155,676
  166,546
  177,856
  189,629
  201,889
  214,665
  227,985
  241,878
  256,378
Retained Cash Flow (-), $m
  673
  -1,587
  -952
  -1,076
  -1,201
  -1,326
  -1,449
  -1,571
  -1,690
  -1,806
  -1,920
  -2,031
  -2,140
  -2,247
  -2,353
  -2,458
  -2,564
  -2,670
  -2,779
  -2,890
  -3,003
  -3,121
  -3,244
  -3,371
  -3,504
  -3,644
  -3,791
  -3,945
  -4,108
  -4,279
  -4,460
Prev. year cash balance distribution, $m
 
  17,904
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  24,989
  11,905
  15,609
  19,703
  24,181
  29,033
  34,249
  39,819
  45,734
  51,983
  58,354
  65,254
  72,473
  80,011
  87,869
  96,050
  104,560
  113,409
  122,607
  132,166
  142,102
  152,432
  163,175
  174,352
  185,985
  198,099
  210,720
  223,877
  237,599
  251,918
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  23,959
  10,898
  13,584
  16,224
  18,743
  21,070
  23,138
  24,888
  26,272
  27,253
  27,711
  27,846
  27,556
  26,861
  25,797
  24,408
  22,751
  20,885
  18,878
  16,794
  14,698
  12,648
  10,695
  8,880
  7,235
  5,780
  4,523
  3,464
  2,594
  1,897
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Abbott Laboratories is engaged in the discovery, development, manufacture and sale of a range of healthcare products. The Company operates through four segments: Established Pharmaceutical Products, Diagnostic Products, Nutritional Products and Vascular Products. Its Established Pharmaceutical Products include a range of branded generic pharmaceuticals manufactured around the world and marketed and sold outside the United States. Its Diagnostic Products include a range of diagnostic systems and tests. Its Nutritional Products include a range of pediatric and adult nutritional products. Its Company's Vascular Products include a range of coronary, endovascular, vessel closure and structural heart devices for the treatment of vascular disease. The Company, through St. Jude Medical, Inc., also offers products, such as rhythm management products, electrophysiology products, heart failure related products, vascular products, structural heart products and neuromodulation products.

FINANCIAL RATIOS  of  Abbott Laboratories (ABT)

Valuation Ratios
P/E Ratio 59.3
Price to Sales 4
Price to Book 4
Price to Tangible Book
Price to Cash Flow 25.9
Price to Free Cash Flow 39.8
Growth Rates
Sales Growth Rate 2.2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 1%
Cap. Spend. - 3 Yr. Gr. Rate -0.4%
Financial Strength
Quick Ratio 22
Current Ratio 0.1
LT Debt to Equity 100.7%
Total Debt to Equity 104.9%
Interest Coverage 9
Management Effectiveness
Return On Assets 3.3%
Ret/ On Assets - 3 Yr. Avg. 6.7%
Return On Total Capital 3.9%
Ret/ On T. Cap. - 3 Yr. Avg. 8.9%
Return On Equity 6.7%
Return On Equity - 3 Yr. Avg. 12.4%
Asset Turnover 0.4
Profitability Ratios
Gross Margin 56.8%
Gross Margin - 3 Yr. Avg. 56.2%
EBITDA Margin 14.1%
EBITDA Margin - 3 Yr. Avg. 19.6%
Operating Margin 15.3%
Oper. Margin - 3 Yr. Avg. 14%
Pre-Tax Margin 6.8%
Pre-Tax Margin - 3 Yr. Avg. 11.6%
Net Profit Margin 6.7%
Net Profit Margin - 3 Yr. Avg. 13.2%
Effective Tax Rate 24.8%
Eff/ Tax Rate - 3 Yr. Avg. 24.8%
Payout Ratio 109.9%

ABT stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ABT stock intrinsic value calculation we used $20853 million for the last fiscal year's total revenue generated by Abbott Laboratories. The default revenue input number comes from 2016 income statement of Abbott Laboratories. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our ABT stock valuation model: a) initial revenue growth rate of 24.5% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for ABT is calculated based on our internal credit rating of Abbott Laboratories, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Abbott Laboratories.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of ABT stock the variable cost ratio is equal to 29%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $11907 million in the base year in the intrinsic value calculation for ABT stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.5% for Abbott Laboratories.

Corporate tax rate of 27% is the nominal tax rate for Abbott Laboratories. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the ABT stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for ABT are equal to 51.6%.

Life of production assets of 14.4 years is the average useful life of capital assets used in Abbott Laboratories operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for ABT is equal to 10.6%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $20538 million for Abbott Laboratories - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 1736.37 million for Abbott Laboratories is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Abbott Laboratories at the current share price and the inputted number of shares is $97.8 billion.

Management's discussion and analysis

Financial Review 

        Abbott's revenues are derived primarily from the sale of a broad line of health care products under short-term receivable arrangements. Patent protection and licenses, technological and performance features, and inclusion of Abbott's products under a contract most impact which products are sold; price controls, competition and rebates most impact the net selling prices of products; and foreign currency translation impacts the measurement of net sales and costs. Abbott's primary products are nutritional products, branded generic pharmaceuticals, diagnostic testing products and vascular products. Sales in international markets comprise approximately 70 percent of consolidated net sales.

        On January 4, 2017, Abbott completed the acquisition of St. Jude Medical, Inc. (St. Jude Medical), a global medical device manufacturer, for approximately $23.6 billion, including approximately $13.6 billion in cash and approximately $10 billion in Abbott common shares, based on Abbott's closing stock price on the acquisition date. As part of the acquisition, approximately $5.8 billion of St. Jude Medical's debt was assumed or refinanced by Abbott. The transaction provides expanded opportunities for future growth and is an important part of the company's ongoing effort to develop a strong, diverse portfolio of devices, diagnostics, nutritionals and branded generic pharmaceuticals. The combined company will compete in nearly every area of the $30 billion cardiovascular market as well as in the neuromodulation market. As the acquisition of St. Jude Medical was completed after December 31, 2016, Abbott's consolidated financial statements do not include the financial condition or the operating results of St. Jude Medical in any of the periods presented herein.

        In September 2016, Abbott announced that it had entered into a definitive agreement to sell Abbott Medical Optics (AMO), its vision care business, to Johnson & Johnson for $4.325 billion in cash, subject to customary purchase price adjustments for cash, debt and working capital. The decision to sell AMO reflects Abbott's proactive shaping of its portfolio in line with its strategic priorities. The transaction is expected to close in the first quarter of 2017 and is subject to customary closing conditions, including regulatory approvals. The operating results of AMO have continued to be included in Earnings from Continuing Operations as they do not qualify for reporting as discontinued operations. The assets and liabilities of this business are being reported as held for disposition in Abbott's Consolidated Balance Sheet as of December 31, 2016.

        On January 30, 2016, Abbott entered into a definitive agreement to acquire Alere Inc. (Alere), a diagnostic device and service provider, for $56.00 per common share in cash. The acquisition is subject to satisfaction of customary closing conditions, including the accuracy of Alere's representations and warranties (subject to certain materiality qualifications), compliance in all material respects with Alere's covenants and receipt of applicable regulatory approvals. Due to a number of adverse developments that have occurred with respect to Alere since the date of the agreement, Abbott has filed a complaint in the Delaware Court of Chancery seeking to terminate the acquisition agreement on the basis that Alere has experienced a "material adverse effect" under the acquisition agreement and has materially breached certain of its covenants.

        On February 27, 2015, Abbott completed the sale of its developed markets branded generics pharmaceuticals business, which was previously included in the Established Pharmaceutical Products segment, to Mylan Inc. for 110 million shares of Mylan N.V., a newly formed entity that combined Mylan's existing business with Abbott's developed markets branded generics pharmaceuticals business. Abbott retained the branded generics pharmaceuticals business and products of its Established Pharmaceutical Products segment in emerging markets. In April 2015, Abbott sold 40.25 million of its Mylan N.V. ordinary shares. Abbott currently owns 69.75 million Mylan N.V. ordinary shares.

Over the last three years, sales growth was driven primarily by the established pharmaceuticals, nutritional and diagnostics businesses. Sales in emerging markets, which represent nearly 50 percent of total company sales, increased 6.3 percent in 2016 and 17.1 percent in 2015, excluding the impact of foreign exchange. (Emerging markets include all countries except the United States, Western Europe, Japan, Canada, Australia and New Zealand.) Over the last three years, margin improvement was driven primarily by the nutritional and diagnostics businesses. Abbott expanded its operating margin by approximately 120 basis points per year in 2016 and 2015. Abbott's sales, costs, and financial position over the same period were impacted by the strengthening of the U.S. dollar relative to international currencies and a challenging economic and fiscal environment in several emerging economies.

        In Abbott's worldwide nutritional products business, sales over the last three years were positively impacted by demographics such as an aging population and an increasing rate of chronic disease in developed markets and the rise of a middle class in many emerging markets, as well as by numerous new product introductions that leveraged Abbott's strong brands. In 2016, excluding the impact of foreign exchange, strong performance in several markets across Latin America and Southeast Asia, as well as increased U.S. sales were partially offset by challenging market conditions in the Chinese pediatric nutritional business. With respect to the profitability of the nutritional products business, manufacturing and distribution process changes, lower commodity costs, and other cost reductions drove margin improvements across the business over the last three years although such improvements were offset by the negative impact of foreign exchange in 2016. Operating margins for this business increased from 21.0 percent in 2014 to 24.1 percent in 2016.

        In Abbott's worldwide diagnostics business, sales growth over the last three years reflected continued market penetration by the Core Laboratory business in the U.S. and China, and growth in other emerging markets, most notably in Latin America. In addition, the Point of Care diagnostics business continued to expand its geographic presence in targeted developed and emerging markets. Worldwide diagnostic sales increased 5.5 percent in 2016 and 7.3 percent in 2015, excluding the impact of foreign exchange. In 2016, Abbott initiated the launch of Alinity™, an integrated family of next-generation diagnostic systems and solutions which are designed to increase efficiency by running more tests in less space, generating test results faster and minimizing human errors while continuing to provide quality results. In the fourth quarter of 2016, Abbott obtained CE Mark for the Alinity™ point of care, immunoassay, clinical chemistry, and blood screening systems and initiated the launch of these four systems in Europe. Over the next two years, Abbott will work to obtain approval and launch Alinity™ systems in multiple geographies for every area in which its diagnostics business competes.

        Margin improvement continued to be a key focus for the diagnostics business in 2016 although such improvements were offset by the negative impact of foreign exchange. Operating margins increased from 22.9 percent of sales in 2014 to 24.8 percent in 2016 as the business continued to execute on efficiency initiatives in the manufacturing and supply chain functions.

        The Established Pharmaceutical Products segment focuses on the sale of its products in emerging markets after the sale of its developed markets business to Mylan on February 27, 2015. The acquisition of CFR Pharmaceuticals S.A. (CFR) in September 2014 more than doubled Abbott's branded generics pharmaceutical presence in Latin America and further expanded its presence in emerging markets. Through the acquisition of Veropharm, a leading Russian pharmaceutical company in December 2014, Abbott established a manufacturing footprint in Russia and obtained a portfolio of medicines that is well aligned with Abbott's current pharmaceutical therapeutic areas of focus. Excluding the impact of foreign exchange, Established Pharmaceutical sales from continuing operations increased 10.5 percent in 2016 and 34.1 percent in 2015. The sales increase in 2016 was driven by double-digit growth in the Brazil, Russia, India and China (BRIC) geographies, which comprise approximately 45 percent of the sales in the Established Pharmaceutical Products segment. Excluding the impact of the 2014 acquisitions as well as the impact of foreign exchange, 2015 Established Pharmaceutical sales from continuing operations increased 13.4 percent.

In the vascular business, excluding the unfavorable impact of foreign exchange, total sales increased in the low single digits from 2014 to 2016, driven by double-digit growth in Abbott's sales of its MitraClip structural heart device for the treatment of mitral regurgitation, as well endovascular franchise sales growth. These increases were partially offset by pricing pressures primarily related to drug-eluting stents (DES) and lower market share for Abbott's XIENCE DES franchise in certain geographies. The XIENCE DES franchise includes XIENCE V, Prime, nano, Pro, ProX, Xpedition, and Alpine. Abbott has continued to develop its worldwide market-leading XIENCE DES franchise over the last three years. Abbott Vascular Products' latest product introduction, XIENCE Alpine, was launched in various markets across Europe and Asia in 2015 and 2016 and in the U.S. in late 2014. The XIENCE franchise maintained its market-leading global position in 2016. Operating margins declined from 36.5 percent in 2014 to 35.8 percent in 2016 primarily due to the unfavorable effect of foreign exchange and ongoing pricing pressures in the coronary business.

        Abbott's short- and long-term debt totaled $22.0 billion at December 31, 2016, which included the debt issued in anticipation of the St. Jude Medical acquisition. At December 31, 2016, Abbott's long-term debt rating was A+ by Standard and Poor's Corporation and A2 by Moody's Investors Service. In conjunction with the completion of the St. Jude Medical acquisition on January 4, 2017, the ratings were adjusted to BBB by Standard & Poor's Corporation and Baa3 by Moody's Investors Service.

        In anticipation of the acquisition of St. Jude Medical, in November 2016, Abbott issued $15.1 billion of long-term debt consisting of $2.85 billion at 2.35% maturing in 2019; $2.85 billion at 2.90% maturing in 2021; $1.50 billion at 3.40% maturing in 2023; $3.00 billion at 3.75% maturing in 2026; $1.65 billion at 4.75% maturing in 2036; and $3.25 billion at 4.90% maturing in 2046. In November 2016, Abbott also entered into interest rate swap contracts totaling $3.0 billion related to the new debt, which have the effect of changing Abbott's obligation from a fixed interest rate to a variable interest rate obligation on the related debt instruments. In March 2015, Abbott issued $2.5 billion of long-term debt consisting of $750 million at 2.00% maturing in 2020; $750 million at 2.55% maturing in 2022; and $1.0 billion at 2.95% maturing in 2025. In March 2015, Abbott also entered into interest rate swap contracts totaling $2.5 billion related to the debt issuance. These contracts have the effect of changing Abbott's obligation from a fixed interest rate to a variable interest rate obligation. In the fourth quarter of 2014, Abbott extinguished approximately $500 million of long-term debt that was assumed as part of the acquisition of CFR and incurred a charge of $18.3 million related to the early repayment of this debt.

        Abbott declared dividends of $1.045 per share in 2016 compared to $0.98 per share in 2015, an increase of approximately 7%. Dividends paid were $1.539 billion in 2016 compared to $1.443 billion in 2015. The year-over-year change in dividends reflects the impact of the increase in the dividend rate. In December 2016, Abbott increased the company's quarterly dividend to $0.265 per share from $0.26 per share, effective with the dividend paid in February 2017.

        In 2017, Abbott will focus on integrating St. Jude Medical, as well as several other key initiatives. The focus of the integration will be to combine the St. Jude Medical business with Abbott's existing vascular business to create a best-in-class organization and to successfully deliver on new product launches that contribute to a broader, more comprehensive cardiovascular and neuromodulation portfolio. In the nutritional business, Abbott will continue to build its product portfolio with the introduction of new science-based products, expand in high-growth emerging markets and implement additional margin improvement initiatives.

        In the established pharmaceuticals business, Abbott will continue to focus on obtaining additional product approvals across numerous countries and increasing its penetration of emerging markets. In the diagnostics business, Abbott will work to launch the full Alinity™ suite across Europe and into additional geographies, including the U.S., over the next two years. The diagnostics business will also focus on expansion in emerging markets and further improvements in the segment's operating margin. In Abbott's other segments, Abbott will focus on developing differentiated technologies in higher growth markets.

[Source: Form 10-K dated 2017-02-17]

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Financial statements of ABT
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