Intrinsic value of Abbott Laboratories - ABT

Previous Close

$54.64

  Intrinsic Value

$404.36

stock screener

  Rating & Target

str. buy

+640%

Previous close

$54.64

 
Intrinsic value

$404.36

 
Up/down potential

+640%

 
Rating

str. buy

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 94.9

 

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
  28.80
  26.42
  24.28
  22.35
  20.62
  19.05
  17.65
  16.38
  15.25
  14.22
  13.30
  12.47
  11.72
  11.05
  10.44
  9.90
  9.41
  8.97
  8.57
  8.22
  7.89
  7.60
  7.34
  7.11
  6.90
  6.71
  6.54
  6.38
  6.25
  6.12
Revenue, $m
  20,853
  26,859
  33,955
  42,198
  51,630
  62,273
  74,139
  87,223
  101,513
  116,989
  133,625
  151,395
  170,272
  190,231
  211,251
  233,316
  256,414
  280,543
  305,706
  331,912
  359,178
  387,530
  416,999
  447,622
  479,445
  512,519
  546,902
  582,657
  619,854
  658,567
  698,878
Variable operating expenses, $m
 
  7,568
  9,364
  11,451
  13,839
  16,533
  19,537
  22,849
  26,467
  30,385
  34,596
  38,327
  43,105
  48,158
  53,480
  59,065
  64,913
  71,021
  77,391
  84,026
  90,928
  98,106
  105,566
  113,318
  121,375
  129,748
  138,452
  147,503
  156,920
  166,720
  176,925
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
  19,773
  21,874
  24,274
  26,982
  30,005
  33,345
  37,003
  40,975
  45,255
  49,838
  53,950
  59,119
  64,572
  70,304
  76,310
  82,589
  89,139
  95,962
  103,061
  110,439
  118,105
  126,065
  134,329
  142,911
  151,823
  161,079
  170,695
  180,692
  191,087
  201,901
Operating income, $m
  3,185
  7,086
  12,081
  17,925
  24,648
  32,268
  40,793
  50,220
  60,538
  71,734
  83,787
  97,446
  111,153
  125,659
  140,947
  157,005
  173,825
  191,404
  209,744
  228,851
  248,739
  269,426
  290,934
  313,292
  336,534
  360,697
  385,824
  411,961
  439,162
  467,480
  496,977
EBITDA, $m
  4,538
  8,817
  14,066
  20,205
  27,266
  35,268
  44,218
  54,114
  64,944
  76,694
  89,343
  102,871
  117,255
  132,476
  148,517
  165,366
  183,014
  201,457
  220,698
  240,744
  261,610
  283,312
  305,876
  329,332
  353,714
  379,062
  405,421
  432,840
  461,373
  491,079
  522,020
Interest expense (income), $m
  181
  724
  1,006
  1,369
  1,791
  2,274
  2,819
  3,427
  4,097
  4,829
  5,622
  6,474
  7,384
  8,351
  9,373
  10,450
  11,580
  12,763
  13,999
  15,288
  16,630
  18,027
  19,479
  20,988
  22,557
  24,187
  25,881
  27,642
  29,473
  31,378
  33,361
Earnings before tax, $m
  1,413
  6,362
  11,075
  16,556
  22,857
  29,994
  37,974
  46,793
  56,441
  66,904
  78,165
  90,971
  103,769
  117,308
  131,574
  146,555
  162,245
  178,641
  195,744
  213,563
  232,109
  251,399
  271,455
  292,304
  313,977
  336,510
  359,943
  384,319
  409,688
  436,102
  463,616
Tax expense, $m
  350
  1,718
  2,990
  4,470
  6,171
  8,098
  10,253
  12,634
  15,239
  18,064
  21,104
  24,562
  28,018
  31,673
  35,525
  39,570
  43,806
  48,233
  52,851
  57,662
  62,669
  67,878
  73,293
  78,922
  84,774
  90,858
  97,185
  103,766
  110,616
  117,747
  125,176
Net income, $m
  1,400
  4,645
  8,085
  12,086
  16,685
  21,896
  27,721
  34,159
  41,202
  48,840
  57,060
  66,409
  75,751
  85,635
  96,049
  106,985
  118,439
  130,408
  142,893
  155,901
  169,439
  183,521
  198,162
  213,382
  229,203
  245,652
  262,758
  280,553
  299,072
  318,354
  338,439

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
  43,673
  55,211
  68,615
  83,951
  101,257
  120,550
  141,826
  165,061
  190,225
  217,276
  246,171
  276,865
  309,319
  343,498
  379,375
  416,934
  456,168
  497,083
  539,694
  584,030
  630,130
  678,046
  727,841
  779,585
  833,365
  889,272
  947,410
  1,007,892
  1,070,841
  1,136,387
Adjusted assets (=assets-cash), $m
  33,891
  43,673
  55,211
  68,615
  83,951
  101,257
  120,550
  141,826
  165,061
  190,225
  217,276
  246,171
  276,865
  309,319
  343,498
  379,375
  416,934
  456,168
  497,083
  539,694
  584,030
  630,130
  678,046
  727,841
  779,585
  833,365
  889,272
  947,410
  1,007,892
  1,070,841
  1,136,387
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
  13,859
  17,521
  21,774
  26,641
  32,133
  38,255
  45,007
  52,381
  60,366
  68,951
  78,120
  87,860
  98,159
  109,006
  120,391
  132,310
  144,760
  157,744
  171,266
  185,336
  199,966
  215,171
  230,973
  247,394
  264,460
  282,202
  300,651
  319,845
  339,821
  360,621
Working capital, $m
  20,116
  2,847
  3,599
  4,473
  5,473
  6,601
  7,859
  9,246
  10,760
  12,401
  14,164
  16,048
  18,049
  20,165
  22,393
  24,731
  27,180
  29,738
  32,405
  35,183
  38,073
  41,078
  44,202
  47,448
  50,821
  54,327
  57,972
  61,762
  65,705
  69,808
  74,081
Total debt, $m
  21,552
  28,729
  39,114
  51,178
  64,980
  80,555
  97,919
  117,067
  137,979
  160,627
  184,973
  210,978
  238,603
  267,811
  298,572
  330,861
  364,664
  399,975
  436,798
  475,148
  515,051
  556,541
  599,666
  644,480
  691,051
  739,452
  789,769
  842,093
  896,527
  953,181
  1,012,173
Total liabilities, $m
  32,128
  39,305
  49,690
  61,754
  75,556
  91,131
  108,495
  127,643
  148,555
  171,203
  195,549
  221,554
  249,179
  278,387
  309,148
  341,437
  375,240
  410,551
  447,374
  485,724
  525,627
  567,117
  610,242
  655,056
  701,627
  750,028
  800,345
  852,669
  907,103
  963,757
  1,022,749
Total equity, $m
  20,538
  4,367
  5,521
  6,862
  8,395
  10,126
  12,055
  14,183
  16,506
  19,023
  21,728
  24,617
  27,687
  30,932
  34,350
  37,937
  41,693
  45,617
  49,708
  53,969
  58,403
  63,013
  67,805
  72,784
  77,959
  83,336
  88,927
  94,741
  100,789
  107,084
  113,639
Total liabilities and equity, $m
  52,666
  43,672
  55,211
  68,616
  83,951
  101,257
  120,550
  141,826
  165,061
  190,226
  217,277
  246,171
  276,866
  309,319
  343,498
  379,374
  416,933
  456,168
  497,082
  539,693
  584,030
  630,130
  678,047
  727,840
  779,586
  833,364
  889,272
  947,410
  1,007,892
  1,070,841
  1,136,388
Debt-to-equity ratio
  1.049
  6.580
  7.080
  7.460
  7.740
  7.960
  8.120
  8.250
  8.360
  8.440
  8.510
  8.570
  8.620
  8.660
  8.690
  8.720
  8.750
  8.770
  8.790
  8.800
  8.820
  8.830
  8.840
  8.850
  8.860
  8.870
  8.880
  8.890
  8.900
  8.900
  8.910
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
  4,645
  8,085
  12,086
  16,685
  21,896
  27,721
  34,159
  41,202
  48,840
  57,060
  66,409
  75,751
  85,635
  96,049
  106,985
  118,439
  130,408
  142,893
  155,901
  169,439
  183,521
  198,162
  213,382
  229,203
  245,652
  262,758
  280,553
  299,072
  318,354
  338,439
Depreciation, amort., depletion, $m
  1,353
  1,731
  1,985
  2,280
  2,618
  3,000
  3,425
  3,894
  4,406
  4,960
  5,557
  5,425
  6,101
  6,817
  7,570
  8,360
  9,188
  10,053
  10,954
  11,894
  12,871
  13,886
  14,942
  16,040
  17,180
  18,365
  19,597
  20,879
  22,211
  23,599
  25,043
Funds from operations, $m
  1,690
  6,375
  10,070
  14,366
  19,304
  24,895
  31,146
  38,052
  45,608
  53,801
  62,617
  71,834
  81,853
  92,451
  103,619
  115,346
  127,627
  140,461
  153,848
  167,795
  182,310
  197,408
  213,105
  229,422
  246,383
  264,018
  282,356
  301,432
  321,284
  341,953
  363,483
Change in working capital, $m
  -1,513
  637
  752
  874
  1,000
  1,128
  1,258
  1,387
  1,515
  1,640
  1,763
  1,884
  2,001
  2,116
  2,228
  2,339
  2,448
  2,558
  2,667
  2,778
  2,890
  3,005
  3,124
  3,246
  3,373
  3,506
  3,645
  3,790
  3,943
  4,104
  4,273
Cash from operations, $m
  3,203
  5,739
  9,318
  13,492
  18,304
  23,767
  29,888
  36,665
  44,093
  52,160
  60,853
  69,951
  79,852
  90,336
  101,391
  113,007
  125,179
  137,903
  151,181
  165,017
  179,420
  194,402
  209,981
  226,176
  243,010
  260,512
  278,711
  297,642
  317,341
  337,849
  359,210
Maintenance CAPEX, $m
  0
  -748
  -962
  -1,217
  -1,512
  -1,850
  -2,231
  -2,657
  -3,125
  -3,638
  -4,192
  -4,788
  -5,425
  -6,101
  -6,817
  -7,570
  -8,360
  -9,188
  -10,053
  -10,954
  -11,894
  -12,871
  -13,886
  -14,942
  -16,040
  -17,180
  -18,365
  -19,597
  -20,879
  -22,211
  -23,599
New CAPEX, $m
  -1,121
  -3,091
  -3,662
  -4,254
  -4,867
  -5,492
  -6,123
  -6,751
  -7,374
  -7,985
  -8,584
  -9,169
  -9,741
  -10,299
  -10,846
  -11,385
  -11,919
  -12,451
  -12,984
  -13,522
  -14,070
  -14,630
  -15,206
  -15,802
  -16,421
  -17,066
  -17,742
  -18,450
  -19,193
  -19,976
  -20,800
Cash from investing activities, $m
  -248
  -3,839
  -4,624
  -5,471
  -6,379
  -7,342
  -8,354
  -9,408
  -10,499
  -11,623
  -12,776
  -13,957
  -15,166
  -16,400
  -17,663
  -18,955
  -20,279
  -21,639
  -23,037
  -24,476
  -25,964
  -27,501
  -29,092
  -30,744
  -32,461
  -34,246
  -36,107
  -38,047
  -40,072
  -42,187
  -44,399
Free cash flow, $m
  2,955
  1,900
  4,694
  8,022
  11,925
  16,425
  21,534
  27,257
  33,594
  40,537
  48,077
  55,993
  64,686
  73,935
  83,728
  94,052
  104,899
  116,264
  128,144
  140,540
  153,457
  166,902
  180,889
  195,432
  210,550
  226,265
  242,604
  259,595
  277,269
  295,662
  314,810
Issuance/(repayment) of debt, $m
  13,155
  8,048
  10,384
  12,064
  13,802
  15,576
  17,364
  19,148
  20,912
  22,647
  24,346
  26,005
  27,625
  29,208
  30,761
  32,290
  33,803
  35,311
  36,823
  38,350
  39,902
  41,490
  43,125
  44,815
  46,570
  48,401
  50,316
  52,324
  54,434
  56,654
  58,992
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
  8,048
  10,384
  12,064
  13,802
  15,576
  17,364
  19,148
  20,912
  22,647
  24,346
  26,005
  27,625
  29,208
  30,761
  32,290
  33,803
  35,311
  36,823
  38,350
  39,902
  41,490
  43,125
  44,815
  46,570
  48,401
  50,316
  52,324
  54,434
  56,654
  58,992
Total cash flow (excl. dividends), $m
  15,158
  9,948
  15,078
  20,086
  25,727
  32,001
  38,898
  46,405
  54,506
  63,185
  72,423
  81,998
  92,311
  103,144
  114,489
  126,341
  138,702
  151,575
  164,967
  178,890
  193,359
  208,393
  224,013
  240,246
  257,120
  274,667
  292,921
  311,919
  331,703
  352,315
  373,802
Retained Cash Flow (-), $m
  673
  -1,733
  -1,154
  -1,340
  -1,534
  -1,731
  -1,929
  -2,128
  -2,324
  -2,516
  -2,705
  -2,889
  -3,069
  -3,245
  -3,418
  -3,588
  -3,756
  -3,923
  -4,091
  -4,261
  -4,434
  -4,610
  -4,792
  -4,979
  -5,174
  -5,378
  -5,591
  -5,814
  -6,048
  -6,295
  -6,555
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
 
  26,119
  13,924
  18,745
  24,194
  30,270
  36,969
  44,277
  52,183
  60,668
  69,718
  79,109
  89,242
  99,898
  111,071
  122,754
  134,946
  147,652
  160,876
  174,629
  188,925
  203,783
  219,222
  235,267
  251,946
  269,289
  287,330
  306,105
  325,655
  346,021
  367,247
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
 
  25,042
  12,747
  16,313
  19,921
  23,463
  26,830
  29,913
  32,615
  34,851
  36,550
  37,568
  38,083
  37,983
  37,288
  36,038
  34,293
  32,127
  29,627
  26,888
  24,007
  21,078
  18,190
  15,420
  12,832
  10,476
  8,383
  6,570
  5,038
  3,777
  2,765
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 57.5
Price to Sales 3.9
Price to Book 3.9
Price to Tangible Book
Price to Cash Flow 25.1
Price to Free Cash Flow 38.7
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 28.8% 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 1737.39 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 $94.9 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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