125 Years Of Healthcare Innovation and Still Growing

Now that the dust surrounding Abbott Laboratories has settled from the AbbVie spinoff, it’s much easier to get a clear picture of the company’s growth opportunities. Here are some factors to look out for in the months and years ahead.

Jan 8, 2014 at 11:28AM

Since its modest beginning as a single pharmacy in 1888, Abbott Laboratories (NYSE:ABT) has been a health care innovator. Recently, the company has been the subject of analyst upgrades, and purchases by top-performing funds. Now that the dust has settled from the AbbVie spinoff, it's much easier to get a clear picture of the company's growth opportunities. Here are some factors to look out for in the months and years ahead.

A correctable mistake
Skittish investors often exhibit a knee jerk reaction to product recall news. Following the voluntary supplier recall of pediatric nutrition products last August, Abbott shares traded near their lowest levels in months. This was a voluntary recall without any associated health issues, that will probably lead to a year long reduction in topline revenue of 1%-2%. With a company as well diversified and financially sturdy as Abbott, this is exactly the sort of opportunity that smart long-term investors sink their teeth into.

The hit taken by Abbott's International Nutrition segment is likely to reverse before the end of the year. CEO Miles White, claims the voluntary recall of pediatric nutritional products in China that began in August 2013 reduced total company sales by about 1.7% for that quarter. During the first nine months of 2013, International Pediatric Nutritionals grew 14% despite the disruption, making it the company's fastest growing segment. It is likely to continue driving growth, especially once the disruption is mended.

Outside of pediatric nutrition, emerging market sales in general have been a strong source of growth, and the trend should continue. During Q3 2013, they rose more than 8% on year, but that figure might have reached 12% without the recall disruption.

Keeping the pipes open
Drug-eluting stents are a basically a scaffolding that slides into a narrowed or diseased blood vessel. They're most often inserted into coronary arteries to keep the blood supply to the heart from shutting off. While in place they slowly release drugs that continue to prevent the artery from becoming blocked.

A fiercely competitive space
While Abbott has perhaps the best selling drug-eluting stent on the market, competition and increasingly austere payers make this a difficult segment to manage. Before Abbot entered the space, Johnson & Johnson (NYSE:JNJ) had the best selling drug-eluting stents on the market. In 2009, its Cypher raked in more than $900 million in sales. Less than two years later the company announced it would exit the stent business altogether. This was due in no small part to the rapid success of Abbott's Xience stent. Although the Johnson & Johnson's medical device division continues to operate in cardiovascular care, it is still out of the stent business.

Another contender
Drug-eluting stents are a big part of Boston Scientific's (NYSE:BSX) turnaround story. Its annoyingly named Promus Premier Everolimus-Eluting Platinum Chromium Coronary Stent System has all the bells and whistles. Results of the PLATINUM clinical trial show that the device is likely to give Abbott's Xience a serious challenge.

Boston Scientific's device won FDA approval in November 2013, and a CE mark in February 2013. The company's international drug-eluting stent sales for the three months ending September 30, 2013 actually fell 2.5%. Device launches in the EU are notoriously slow compared to the U.S. market. It may be another two or three quarters before we can assess the impact of this next-generation stent on Abbott's market dominance.

Winning hearts and legs
In August 2013, Abbott completed its acquisition of IDEV Technologies. This added the SUPERA stent to its portfolio. Unlike most stents, this device treats blockages of the superficial femoral artery. Lower-extremity peripheral artery disease affects about 8 million Americans, and the device is currently under FDA review.

Expensive on the surface
Like Baxter International and Johnson & Johnson, Abbott Labs operates largely in the pharmaceutical, and medical device industries. Compared to its peers, Abbott isn't looking terribly cheap at the moment. Its one year forward P/E Ratio of about 17.5 is at unprecedented levels, and currently higher than its peers. However, applying a DCF model the company does appear undervalued.

ABT PE Ratio (Forward 1y) Chart

ABT P/E Ratio (Forward 1y) data by YCharts

Giving it back
Recent Abbott investors will be happy to see the return of respectable quarterly distributions. Leading up to the spinoff of AbbVie, the company slashed its quarterly dividend from $0.51 to $0.14 per share. The distribution is now at $0.22 per share and should continue growing at a steady pace. Prior to the spinoff, Abbot consistently increased its dividend for 41 years.

ABT Dividend Chart

ABT Dividend data by YCharts

Since the spinoff Abbott has reduced its number of shares outstanding by about 1.7%. Investors will be receiving an even bigger slice of the company's earnings going forward. Its board approved repurchases of $3 billion in June. At the end of Q3 2013, about $2.65 billion remained. That's roughly 4.3% of outstanding shares at recent prices.

Just getting started
Overall, it seems Abbott investors have plenty of reasons to expect another 125 years of good times from this industry stalwart. Emerging markets are providing opportunities for growth, while its entrenched positions in the U.S. remain steady. The stent segment is likely to endure a great deal of pressure from competition and the Obamacare rollout, but it is a relatively small part of this diverse company's total operations. Although it is too late to take advantage of the recall overreaction, I would definitely stay on the lookout for a similar opportunity in the near future.

Abbott Labs isn't the only company feeling Obamacare's effects 
Obamacare seems complex, but it doesn't have to be. In only minutes, you can learn the critical facts you need to know in a special free report called Everything You Need to Know About Obamacare. This FREE guide contains the key information and money-making advice that every American must know. Please click here to access your free copy.

Cory Renauer has no position in any stocks mentioned. The Motley Fool recommends Johnson & Johnson. The Motley Fool owns shares of Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers