Intrinsic value of Abbott Laboratories - ABT

Previous Close

$64.72

  Intrinsic Value

$81.69

stock screener

  Rating & Target

buy

+26%

Previous close

$64.72

 
Intrinsic value

$81.69

 
Up/down potential

+26%

 
Rating

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 2017), $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 112.6

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   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
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  31.40
  28.76
  26.38
  24.25
  22.32
  20.59
  19.03
  17.63
  16.36
  15.23
  14.21
  13.28
  12.46
  11.71
  11.04
  10.44
  9.89
  9.40
  8.96
  8.57
  8.21
  7.89
  7.60
  7.34
  7.11
  6.90
  6.71
  6.54
  6.38
  6.24
Revenue, $m
  35,990
  46,341
  58,568
  72,768
  89,011
  107,337
  127,763
  150,284
  174,877
  201,508
  230,132
  260,704
  293,178
  327,510
  363,666
  401,616
  441,344
  482,843
  526,117
  571,186
  618,078
  666,836
  717,514
  770,179
  824,906
  881,786
  940,916
  1,002,406
  1,066,376
  1,132,955
Variable operating expenses, $m
  29,055
  36,103
  44,429
  54,098
  65,157
  77,636
  91,544
  106,879
  123,624
  141,757
  156,698
  177,515
  199,627
  223,004
  247,622
  273,463
  300,514
  328,771
  358,237
  388,924
  420,853
  454,053
  488,560
  524,420
  561,684
  600,414
  640,676
  682,545
  726,102
  771,436
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
  29,055
  36,103
  44,429
  54,098
  65,157
  77,636
  91,544
  106,879
  123,624
  141,757
  156,698
  177,515
  199,627
  223,004
  247,622
  273,463
  300,514
  328,771
  358,237
  388,924
  420,853
  454,053
  488,560
  524,420
  561,684
  600,414
  640,676
  682,545
  726,102
  771,436
Operating income, $m
  6,935
  10,238
  14,139
  18,671
  23,853
  29,701
  36,219
  43,405
  51,253
  59,750
  73,434
  83,189
  93,551
  104,506
  116,043
  128,153
  140,830
  154,072
  167,881
  182,262
  197,225
  212,783
  228,954
  245,759
  263,222
  281,372
  300,240
  319,861
  340,274
  361,518
EBITDA, $m
  16,152
  20,798
  26,285
  32,658
  39,947
  48,172
  57,339
  67,447
  78,484
  90,435
  103,282
  117,002
  131,576
  146,985
  163,211
  180,243
  198,072
  216,697
  236,118
  256,344
  277,389
  299,272
  322,016
  345,651
  370,213
  395,740
  422,277
  449,873
  478,583
  508,463
Interest expense (income), $m
  181
  1,470
  2,218
  3,123
  4,193
  5,435
  6,856
  8,459
  10,245
  12,215
  14,366
  16,696
  19,200
  21,874
  24,714
  27,717
  30,880
  34,199
  37,675
  41,304
  45,090
  49,032
  53,134
  57,399
  61,831
  66,438
  71,225
  76,200
  81,373
  86,751
  92,347
Earnings before tax, $m
  5,465
  8,020
  11,016
  14,478
  18,419
  22,846
  27,761
  33,160
  39,038
  45,384
  56,738
  63,989
  71,677
  79,792
  88,326
  97,273
  106,631
  116,397
  126,576
  137,172
  148,193
  159,649
  171,556
  183,928
  196,784
  210,147
  224,040
  238,489
  253,522
  269,172
Tax expense, $m
  1,476
  2,165
  2,974
  3,909
  4,973
  6,168
  7,495
  8,953
  10,540
  12,254
  15,319
  17,277
  19,353
  21,544
  23,848
  26,264
  28,790
  31,427
  34,176
  37,036
  40,012
  43,105
  46,320
  49,660
  53,132
  56,740
  60,491
  64,392
  68,451
  72,676
Net income, $m
  3,989
  5,855
  8,042
  10,569
  13,446
  16,677
  20,265
  24,207
  28,498
  33,130
  41,419
  46,712
  52,324
  58,248
  64,478
  71,009
  77,840
  84,970
  92,401
  100,136
  108,181
  116,544
  125,236
  134,267
  143,652
  153,407
  163,549
  174,097
  185,071
  196,495

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
  99,147
  127,662
  161,344
  200,463
  245,209
  295,695
  351,965
  414,007
  481,756
  555,117
  633,972
  718,193
  807,652
  902,232
  1,001,834
  1,106,381
  1,215,824
  1,330,145
  1,449,359
  1,573,515
  1,702,695
  1,837,014
  1,976,624
  2,121,704
  2,272,469
  2,429,161
  2,592,054
  2,761,449
  2,937,675
  3,121,088
Adjusted assets (=assets-cash), $m
  99,147
  127,662
  161,344
  200,463
  245,209
  295,695
  351,965
  414,007
  481,756
  555,117
  633,972
  718,193
  807,652
  902,232
  1,001,834
  1,106,381
  1,215,824
  1,330,145
  1,449,359
  1,573,515
  1,702,695
  1,837,014
  1,976,624
  2,121,704
  2,272,469
  2,429,161
  2,592,054
  2,761,449
  2,937,675
  3,121,088
Revenue / Adjusted assets
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
Average production assets, $m
  46,680
  60,105
  75,963
  94,380
  115,447
  139,216
  165,709
  194,919
  226,816
  261,355
  298,481
  338,133
  380,252
  424,781
  471,675
  520,896
  572,423
  626,247
  682,374
  740,828
  801,647
  864,887
  930,616
  998,922
  1,069,903
  1,143,676
  1,220,368
  1,300,121
  1,383,090
  1,469,442
Working capital, $m
  1,584
  2,039
  2,577
  3,202
  3,916
  4,723
  5,622
  6,613
  7,695
  8,866
  10,126
  11,471
  12,900
  14,410
  16,001
  17,671
  19,419
  21,245
  23,149
  25,132
  27,195
  29,341
  31,571
  33,888
  36,296
  38,799
  41,400
  44,106
  46,921
  49,850
Total debt, $m
  41,071
  57,837
  77,642
  100,644
  126,955
  156,640
  189,728
  226,208
  266,045
  309,181
  355,548
  405,070
  457,671
  513,285
  571,851
  633,324
  697,676
  764,897
  834,995
  907,999
  983,956
  1,062,936
  1,145,027
  1,230,334
  1,318,984
  1,411,119
  1,506,900
  1,606,504
  1,710,125
  1,817,972
Total liabilities, $m
  58,299
  75,065
  94,870
  117,872
  144,183
  173,868
  206,956
  243,436
  283,273
  326,409
  372,776
  422,298
  474,899
  530,513
  589,079
  650,552
  714,904
  782,125
  852,223
  925,227
  1,001,184
  1,080,164
  1,162,255
  1,247,562
  1,336,212
  1,428,347
  1,524,128
  1,623,732
  1,727,353
  1,835,200
Total equity, $m
  40,849
  52,597
  66,474
  82,591
  101,026
  121,826
  145,010
  170,571
  198,483
  228,708
  261,197
  295,896
  332,753
  371,720
  412,756
  455,829
  500,919
  548,020
  597,136
  648,288
  701,510
  756,850
  814,369
  874,142
  936,257
  1,000,814
  1,067,926
  1,137,717
  1,210,322
  1,285,888
Total liabilities and equity, $m
  99,148
  127,662
  161,344
  200,463
  245,209
  295,694
  351,966
  414,007
  481,756
  555,117
  633,973
  718,194
  807,652
  902,233
  1,001,835
  1,106,381
  1,215,823
  1,330,145
  1,449,359
  1,573,515
  1,702,694
  1,837,014
  1,976,624
  2,121,704
  2,272,469
  2,429,161
  2,592,054
  2,761,449
  2,937,675
  3,121,088
Debt-to-equity ratio
  1.010
  1.100
  1.170
  1.220
  1.260
  1.290
  1.310
  1.330
  1.340
  1.350
  1.360
  1.370
  1.380
  1.380
  1.390
  1.390
  1.390
  1.400
  1.400
  1.400
  1.400
  1.400
  1.410
  1.410
  1.410
  1.410
  1.410
  1.410
  1.410
  1.410
Adjusted equity ratio
  0.412
  0.412
  0.412
  0.412
  0.412
  0.412
  0.412
  0.412
  0.412
  0.412
  0.412
  0.412
  0.412
  0.412
  0.412
  0.412
  0.412
  0.412
  0.412
  0.412
  0.412
  0.412
  0.412
  0.412
  0.412
  0.412
  0.412
  0.412
  0.412
  0.412

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  3,989
  5,855
  8,042
  10,569
  13,446
  16,677
  20,265
  24,207
  28,498
  33,130
  41,419
  46,712
  52,324
  58,248
  64,478
  71,009
  77,840
  84,970
  92,401
  100,136
  108,181
  116,544
  125,236
  134,267
  143,652
  153,407
  163,549
  174,097
  185,071
  196,495
Depreciation, amort., depletion, $m
  9,217
  10,560
  12,146
  13,987
  16,094
  18,471
  21,120
  24,041
  27,231
  30,685
  29,848
  33,813
  38,025
  42,478
  47,167
  52,090
  57,242
  62,625
  68,237
  74,083
  80,165
  86,489
  93,062
  99,892
  106,990
  114,368
  122,037
  130,012
  138,309
  146,944
Funds from operations, $m
  13,207
  16,414
  20,187
  24,556
  29,540
  35,148
  41,385
  48,248
  55,728
  63,815
  71,267
  80,526
  90,350
  100,726
  111,645
  123,099
  135,083
  147,595
  160,638
  174,218
  188,345
  203,033
  218,297
  234,159
  250,643
  267,775
  285,586
  304,109
  323,380
  343,440
Change in working capital, $m
  378
  455
  538
  625
  715
  806
  899
  991
  1,082
  1,172
  1,259
  1,345
  1,429
  1,511
  1,591
  1,670
  1,748
  1,826
  1,904
  1,983
  2,063
  2,145
  2,230
  2,317
  2,408
  2,503
  2,602
  2,706
  2,815
  2,929
Cash from operations, $m
  12,828
  15,959
  19,649
  23,931
  28,825
  34,342
  40,487
  47,257
  54,646
  62,643
  70,007
  79,180
  88,921
  99,216
  110,055
  121,429
  133,335
  145,769
  158,734
  172,235
  186,282
  200,887
  216,067
  231,842
  248,235
  265,272
  282,984
  301,403
  320,566
  340,510
Maintenance CAPEX, $m
  -3,551
  -4,668
  -6,010
  -7,596
  -9,438
  -11,545
  -13,922
  -16,571
  -19,492
  -22,682
  -26,136
  -29,848
  -33,813
  -38,025
  -42,478
  -47,167
  -52,090
  -57,242
  -62,625
  -68,237
  -74,083
  -80,165
  -86,489
  -93,062
  -99,892
  -106,990
  -114,368
  -122,037
  -130,012
  -138,309
New CAPEX, $m
  -11,166
  -13,425
  -15,858
  -18,418
  -21,067
  -23,769
  -26,493
  -29,210
  -31,897
  -34,539
  -37,126
  -39,652
  -42,118
  -44,529
  -46,894
  -49,222
  -51,527
  -53,824
  -56,127
  -58,454
  -60,819
  -63,239
  -65,730
  -68,306
  -70,982
  -73,773
  -76,692
  -79,753
  -82,969
  -86,353
Cash from investing activities, $m
  -14,717
  -18,093
  -21,868
  -26,014
  -30,505
  -35,314
  -40,415
  -45,781
  -51,389
  -57,221
  -63,262
  -69,500
  -75,931
  -82,554
  -89,372
  -96,389
  -103,617
  -111,066
  -118,752
  -126,691
  -134,902
  -143,404
  -152,219
  -161,368
  -170,874
  -180,763
  -191,060
  -201,790
  -212,981
  -224,662
Free cash flow, $m
  -1,889
  -2,134
  -2,219
  -2,083
  -1,680
  -972
  72
  1,477
  3,257
  5,423
  6,746
  9,680
  12,989
  16,661
  20,683
  25,040
  29,718
  34,703
  39,982
  45,544
  51,380
  57,483
  63,849
  70,475
  77,361
  84,509
  91,925
  99,614
  107,585
  115,848
Issuance/(repayment) of debt, $m
  13,845
  16,767
  19,805
  23,002
  26,310
  29,686
  33,087
  36,480
  39,837
  43,136
  46,367
  49,522
  52,602
  55,613
  58,566
  61,473
  64,352
  67,221
  70,098
  73,004
  75,958
  78,980
  82,090
  85,307
  88,650
  92,135
  95,781
  99,604
  103,621
  107,847
Issuance/(repurchase) of shares, $m
  5,761
  5,893
  5,835
  5,548
  4,990
  4,123
  2,918
  1,354
  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  
  19,606
  22,660
  25,640
  28,550
  31,300
  33,809
  36,005
  37,834
  39,837
  43,136
  46,367
  49,522
  52,602
  55,613
  58,566
  61,473
  64,352
  67,221
  70,098
  73,004
  75,958
  78,980
  82,090
  85,307
  88,650
  92,135
  95,781
  99,604
  103,621
  107,847
Total cash flow (excl. dividends), $m
  17,717
  20,526
  23,421
  26,468
  29,620
  32,836
  36,078
  39,311
  43,094
  48,559
  53,113
  59,202
  65,591
  72,274
  79,249
  86,514
  94,070
  101,924
  110,080
  118,548
  127,338
  136,463
  145,939
  155,782
  166,011
  176,644
  187,706
  199,218
  211,205
  223,695
Retained Cash Flow (-), $m
  -9,751
  -11,748
  -13,877
  -16,117
  -18,435
  -20,800
  -23,184
  -25,561
  -27,913
  -30,225
  -32,488
  -34,699
  -36,857
  -38,967
  -41,036
  -43,073
  -45,090
  -47,100
  -49,116
  -51,152
  -53,222
  -55,340
  -57,519
  -59,773
  -62,115
  -64,557
  -67,112
  -69,791
  -72,605
  -75,566
Prev. year cash balance distribution, $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 flow adjustment, $m
  411
  540
  695
  879
  1,092
  1,335
  1,610
  1,916
  2,254
  2,623
  3,023
  3,452
  3,911
  4,398
  4,913
  5,455
  6,024
  6,620
  7,243
  7,892
  8,568
  9,271
  10,003
  10,763
  11,553
  12,374
  13,227
  14,114
  15,036
  15,996
Cash available for distribution, $m
  7,966
  8,778
  9,544
  10,351
  11,185
  12,036
  12,894
  13,750
  15,181
  18,334
  20,624
  24,503
  28,734
  33,307
  38,213
  43,440
  48,980
  54,823
  60,964
  67,395
  74,116
  81,124
  88,420
  96,009
  103,895
  112,087
  120,594
  129,427
  138,600
  148,129
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
  7,544
  7,830
  7,974
  8,051
  8,047
  7,954
  7,770
  7,495
  7,423
  7,970
  7,895
  8,176
  8,268
  8,169
  7,893
  7,458
  6,895
  6,237
  5,518
  4,776
  4,041
  3,342
  2,699
  2,128
  1,637
  1,227
  895
  636
  439
  294
Current shareholders' claim on cash, %
  95.1
  91.5
  88.8
  86.8
  85.3
  84.4
  83.8
  83.6
  83.6
  83.6
  83.6
  83.6
  83.6
  83.6
  83.6
  83.6
  83.6
  83.6
  83.6
  83.6
  83.6
  83.6
  83.6
  83.6
  83.6
  83.6
  83.6
  83.6
  83.6
  83.6

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 68.1
Price to Sales 4.6
Price to Book 4.6
Price to Tangible Book
Price to Cash Flow 29.8
Price to Free Cash Flow 45.8
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 $27390 million for the last fiscal year's total revenue generated by Abbott Laboratories. The default revenue input number comes from 2017 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 31.4% 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 1.5%.

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 129.7%.

Life of production assets of 10 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 4.4%. 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 1740 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 $112.6 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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