Intrinsic value of Abbott Laboratories - ABT

Previous Close

$69.75

  Intrinsic Value

$67.46

stock screener

  Rating & Target

hold

-3%

Previous close

$69.75

 
Intrinsic value

$67.46

 
Up/down potential

-3%

 
Rating

hold

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 0001), $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 122.4

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  17.00
  15.80
  14.72
  13.75
  12.87
  12.09
  11.38
  10.74
  10.17
  9.65
  9.18
  8.77
  8.39
  8.05
  7.75
  7.47
  7.22
  7.00
  6.80
  6.62
  6.46
  6.31
  6.18
  6.06
  5.96
  5.86
  5.78
  5.70
  5.63
  5.57
Revenue, $m
  32,046
  37,110
  42,572
  48,425
  54,659
  61,265
  68,235
  75,563
  83,245
  91,277
  99,660
  108,396
  117,489
  126,948
  136,780
  146,998
  157,617
  168,652
  180,122
  192,048
  204,453
  217,360
  230,796
  244,791
  259,374
  274,577
  290,434
  306,983
  324,260
  342,306
Variable operating expenses, $m
  26,370
  29,817
  33,537
  37,522
  41,767
  46,265
  51,011
  56,001
  61,231
  66,700
  67,859
  73,808
  79,999
  86,439
  93,134
  100,092
  107,322
  114,836
  122,647
  130,767
  139,213
  148,002
  157,151
  166,680
  176,609
  186,961
  197,759
  209,027
  220,791
  233,078
Fixed operating expenses, $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
Total operating expenses, $m
  26,370
  29,817
  33,537
  37,522
  41,767
  46,265
  51,011
  56,001
  61,231
  66,700
  67,859
  73,808
  79,999
  86,439
  93,134
  100,092
  107,322
  114,836
  122,647
  130,767
  139,213
  148,002
  157,151
  166,680
  176,609
  186,961
  197,759
  209,027
  220,791
  233,078
Operating income, $m
  5,676
  7,292
  9,035
  10,903
  12,892
  15,000
  17,224
  19,562
  22,014
  24,577
  31,801
  34,588
  37,490
  40,508
  43,646
  46,906
  50,295
  53,816
  57,476
  61,281
  65,240
  69,358
  73,646
  78,111
  82,764
  87,616
  92,676
  97,956
  103,469
  109,227
EBITDA, $m
  12,317
  14,263
  16,363
  18,612
  21,008
  23,547
  26,226
  29,043
  31,995
  35,082
  38,304
  41,662
  45,157
  48,792
  52,571
  56,499
  60,580
  64,821
  69,230
  73,813
  78,581
  83,542
  88,706
  94,085
  99,690
  105,533
  111,628
  117,988
  124,629
  131,564
Interest expense (income), $m
  181
  1,508
  1,917
  2,361
  2,839
  3,352
  3,899
  4,477
  5,088
  5,731
  6,404
  7,108
  7,842
  8,608
  9,405
  10,234
  11,096
  11,991
  12,922
  13,889
  14,894
  15,939
  17,026
  18,158
  19,335
  20,562
  21,840
  23,172
  24,562
  26,012
  27,526
Earnings before tax, $m
  4,169
  5,375
  6,675
  8,064
  9,540
  11,101
  12,747
  14,474
  16,283
  18,173
  24,693
  26,746
  28,882
  31,103
  33,412
  35,811
  38,303
  40,894
  43,587
  46,387
  49,300
  52,332
  55,488
  58,776
  62,203
  65,776
  69,504
  73,394
  77,457
  81,701
Tax expense, $m
  1,126
  1,451
  1,802
  2,177
  2,576
  2,997
  3,442
  3,908
  4,396
  4,907
  6,667
  7,221
  7,798
  8,398
  9,021
  9,669
  10,342
  11,041
  11,769
  12,525
  13,311
  14,130
  14,982
  15,870
  16,795
  17,760
  18,766
  19,817
  20,913
  22,059
Net income, $m
  3,043
  3,924
  4,873
  5,886
  6,964
  8,104
  9,305
  10,566
  11,887
  13,266
  18,026
  19,525
  21,084
  22,705
  24,391
  26,142
  27,962
  29,853
  31,819
  33,863
  35,989
  38,202
  40,506
  42,907
  45,408
  48,017
  50,738
  53,578
  56,544
  59,642

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $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
Total assets, $m
  87,558
  101,392
  116,317
  132,309
  149,341
  167,390
  186,435
  206,457
  227,445
  249,391
  272,295
  296,164
  321,009
  346,851
  373,716
  401,635
  430,648
  460,798
  492,138
  524,723
  558,614
  593,879
  630,591
  668,828
  708,671
  750,210
  793,537
  838,751
  885,956
  935,261
Adjusted assets (=assets-cash), $m
  87,558
  101,392
  116,317
  132,309
  149,341
  167,390
  186,435
  206,457
  227,445
  249,391
  272,295
  296,164
  321,009
  346,851
  373,716
  401,635
  430,648
  460,798
  492,138
  524,723
  558,614
  593,879
  630,591
  668,828
  708,671
  750,210
  793,537
  838,751
  885,956
  935,261
Revenue / Adjusted assets
  0.366
  0.366
  0.366
  0.366
  0.366
  0.366
  0.366
  0.366
  0.366
  0.366
  0.366
  0.366
  0.366
  0.366
  0.366
  0.366
  0.366
  0.366
  0.366
  0.366
  0.366
  0.366
  0.366
  0.366
  0.366
  0.366
  0.366
  0.366
  0.366
  0.366
Average production assets, $m
  24,676
  28,574
  32,781
  37,287
  42,087
  47,174
  52,541
  58,184
  64,098
  70,283
  76,738
  83,465
  90,467
  97,750
  105,321
  113,189
  121,365
  129,862
  138,694
  147,877
  157,429
  167,367
  177,713
  188,489
  199,718
  211,424
  223,634
  236,377
  249,680
  263,575
Working capital, $m
  2,724
  3,154
  3,619
  4,116
  4,646
  5,208
  5,800
  6,423
  7,076
  7,759
  8,471
  9,214
  9,987
  10,791
  11,626
  12,495
  13,397
  14,335
  15,310
  16,324
  17,378
  18,476
  19,618
  20,807
  22,047
  23,339
  24,687
  26,094
  27,562
  29,096
Total debt, $m
  35,496
  43,713
  52,579
  62,077
  72,195
  82,916
  94,228
  106,121
  118,588
  131,624
  145,229
  159,407
  174,166
  189,516
  205,473
  222,057
  239,291
  257,200
  275,816
  295,171
  315,303
  336,250
  358,057
  380,770
  404,437
  429,110
  454,847
  481,704
  509,744
  539,031
Total liabilities, $m
  52,010
  60,227
  69,093
  78,591
  88,709
  99,430
  110,742
  122,635
  135,102
  148,138
  161,743
  175,921
  190,680
  206,030
  221,987
  238,571
  255,805
  273,714
  292,330
  311,685
  331,817
  352,764
  374,571
  397,284
  420,951
  445,624
  471,361
  498,218
  526,258
  555,545
Total equity, $m
  35,549
  41,165
  47,225
  53,717
  60,632
  67,960
  75,692
  83,822
  92,342
  101,253
  110,552
  120,243
  130,330
  140,822
  151,729
  163,064
  174,843
  187,084
  199,808
  213,037
  226,797
  241,115
  256,020
  271,544
  287,720
  304,585
  322,176
  340,533
  359,698
  379,716
Total liabilities and equity, $m
  87,559
  101,392
  116,318
  132,308
  149,341
  167,390
  186,434
  206,457
  227,444
  249,391
  272,295
  296,164
  321,010
  346,852
  373,716
  401,635
  430,648
  460,798
  492,138
  524,722
  558,614
  593,879
  630,591
  668,828
  708,671
  750,209
  793,537
  838,751
  885,956
  935,261
Debt-to-equity ratio
  1.000
  1.060
  1.110
  1.160
  1.190
  1.220
  1.240
  1.270
  1.280
  1.300
  1.310
  1.330
  1.340
  1.350
  1.350
  1.360
  1.370
  1.370
  1.380
  1.390
  1.390
  1.390
  1.400
  1.400
  1.410
  1.410
  1.410
  1.410
  1.420
  1.420
Adjusted equity ratio
  0.406
  0.406
  0.406
  0.406
  0.406
  0.406
  0.406
  0.406
  0.406
  0.406
  0.406
  0.406
  0.406
  0.406
  0.406
  0.406
  0.406
  0.406
  0.406
  0.406
  0.406
  0.406
  0.406
  0.406
  0.406
  0.406
  0.406
  0.406
  0.406
  0.406

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  3,043
  3,924
  4,873
  5,886
  6,964
  8,104
  9,305
  10,566
  11,887
  13,266
  18,026
  19,525
  21,084
  22,705
  24,391
  26,142
  27,962
  29,853
  31,819
  33,863
  35,989
  38,202
  40,506
  42,907
  45,408
  48,017
  50,738
  53,578
  56,544
  59,642
Depreciation, amort., depletion, $m
  6,640
  6,971
  7,327
  7,709
  8,116
  8,547
  9,002
  9,480
  9,981
  10,506
  6,503
  7,073
  7,667
  8,284
  8,925
  9,592
  10,285
  11,005
  11,754
  12,532
  13,341
  14,184
  15,060
  15,974
  16,925
  17,917
  18,952
  20,032
  21,159
  22,337
Funds from operations, $m
  9,684
  10,895
  12,200
  13,596
  15,080
  16,651
  18,307
  20,046
  21,868
  23,772
  24,529
  26,598
  28,751
  30,989
  33,316
  35,734
  38,247
  40,858
  43,572
  46,395
  49,331
  52,386
  55,567
  58,880
  62,333
  65,934
  69,690
  73,610
  77,703
  81,979
Change in working capital, $m
  396
  430
  464
  497
  530
  562
  592
  623
  653
  683
  713
  743
  773
  804
  836
  869
  903
  938
  975
  1,014
  1,054
  1,097
  1,142
  1,190
  1,240
  1,292
  1,348
  1,407
  1,469
  1,534
Cash from operations, $m
  9,288
  10,465
  11,736
  13,098
  14,550
  16,090
  17,714
  19,423
  21,215
  23,089
  23,817
  25,855
  27,978
  30,185
  32,480
  34,866
  37,344
  39,920
  42,597
  45,381
  48,276
  51,289
  54,425
  57,691
  61,094
  64,642
  68,342
  72,203
  76,235
  80,445
Maintenance CAPEX, $m
  -1,787
  -2,091
  -2,422
  -2,778
  -3,160
  -3,567
  -3,998
  -4,453
  -4,931
  -5,432
  -5,956
  -6,503
  -7,073
  -7,667
  -8,284
  -8,925
  -9,592
  -10,285
  -11,005
  -11,754
  -12,532
  -13,341
  -14,184
  -15,060
  -15,974
  -16,925
  -17,917
  -18,952
  -20,032
  -21,159
New CAPEX, $m
  -3,591
  -3,899
  -4,206
  -4,507
  -4,800
  -5,087
  -5,367
  -5,643
  -5,915
  -6,185
  -6,455
  -6,727
  -7,002
  -7,283
  -7,571
  -7,868
  -8,176
  -8,497
  -8,832
  -9,183
  -9,551
  -9,939
  -10,346
  -10,776
  -11,229
  -11,706
  -12,210
  -12,742
  -13,303
  -13,895
Cash from investing activities, $m
  -5,378
  -5,990
  -6,628
  -7,285
  -7,960
  -8,654
  -9,365
  -10,096
  -10,846
  -11,617
  -12,411
  -13,230
  -14,075
  -14,950
  -15,855
  -16,793
  -17,768
  -18,782
  -19,837
  -20,937
  -22,083
  -23,280
  -24,530
  -25,836
  -27,203
  -28,631
  -30,127
  -31,694
  -33,335
  -35,054
Free cash flow, $m
  3,910
  4,475
  5,108
  5,813
  6,590
  7,436
  8,350
  9,328
  10,369
  11,472
  11,406
  12,625
  13,902
  15,236
  16,626
  18,072
  19,576
  21,138
  22,760
  24,444
  26,193
  28,009
  29,895
  31,854
  33,891
  36,010
  38,214
  40,509
  42,899
  45,390
Issuance/(repayment) of debt, $m
  7,572
  8,218
  8,865
  9,499
  10,117
  10,721
  11,312
  11,893
  12,467
  13,036
  13,605
  14,178
  14,758
  15,350
  15,957
  16,584
  17,233
  17,910
  18,616
  19,355
  20,131
  20,948
  21,807
  22,712
  23,667
  24,674
  25,736
  26,857
  28,040
  29,287
Issuance/(repurchase) of shares, $m
  2,106
  1,693
  1,187
  606
  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  
  9,678
  9,911
  10,052
  10,105
  10,117
  10,721
  11,312
  11,893
  12,467
  13,036
  13,605
  14,178
  14,758
  15,350
  15,957
  16,584
  17,233
  17,910
  18,616
  19,355
  20,131
  20,948
  21,807
  22,712
  23,667
  24,674
  25,736
  26,857
  28,040
  29,287
Total cash flow (excl. dividends), $m
  13,587
  14,385
  15,160
  15,918
  16,707
  18,157
  19,662
  21,221
  22,836
  24,508
  25,011
  26,803
  28,661
  30,586
  32,583
  34,656
  36,809
  39,047
  41,376
  43,800
  46,324
  48,956
  51,702
  54,567
  57,558
  60,684
  63,950
  67,366
  70,939
  74,678
Retained Cash Flow (-), $m
  -5,149
  -5,617
  -6,060
  -6,492
  -6,915
  -7,328
  -7,732
  -8,129
  -8,521
  -8,910
  -9,299
  -9,691
  -10,087
  -10,492
  -10,907
  -11,335
  -11,779
  -12,241
  -12,724
  -13,229
  -13,760
  -14,318
  -14,905
  -15,524
  -16,176
  -16,865
  -17,591
  -18,357
  -19,165
  -20,018
Prev. year cash balance distribution, $m
  698
  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
  9,136
  8,768
  9,101
  9,426
  9,792
  10,830
  11,930
  13,092
  14,315
  15,598
  15,712
  17,113
  18,573
  20,094
  21,676
  23,321
  25,030
  26,806
  28,652
  30,570
  32,565
  34,639
  36,797
  39,043
  41,382
  43,819
  46,360
  49,009
  51,774
  54,660
Discount rate, %
  5.60
  5.88
  6.17
  6.48
  6.81
  7.15
  7.50
  7.88
  8.27
  8.69
  9.12
  9.58
  10.06
  10.56
  11.09
  11.64
  12.22
  12.84
  13.48
  14.15
  14.86
  15.60
  16.38
  17.20
  18.06
  18.96
  19.91
  20.91
  21.95
  23.05
PV of cash for distribution, $m
  8,652
  7,821
  7,604
  7,332
  7,045
  7,157
  7,189
  7,137
  7,000
  6,781
  6,014
  5,710
  5,344
  4,929
  4,477
  4,004
  3,524
  3,049
  2,594
  2,166
  1,776
  1,427
  1,123
  865
  652
  480
  344
  241
  164
  108
Current shareholders' claim on cash, %
  98.3
  97.1
  96.4
  96.1
  96.1
  96.1
  96.1
  96.1
  96.1
  96.1
  96.1
  96.1
  96.1
  96.1
  96.1
  96.1
  96.1
  96.1
  96.1
  96.1
  96.1
  96.1
  96.1
  96.1
  96.1
  96.1
  96.1
  96.1
  96.1
  96.1

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 73.4
Price to Sales 4.9
Price to Book 5
Price to Tangible Book
Price to Cash Flow 32.1
Price to Free Cash Flow 49.3
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 $27390 million for the last fiscal year's total revenue generated by Abbott Laboratories. The default revenue input number comes from 0001 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 17% 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 5.6%, 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 84.7%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 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 5.4% 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 77%.

Life of production assets of 11.8 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 8.5%. 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 - $31098 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 1754.32 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 $122.4 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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