Abbott Labs New Coverage: $62 Trefis Price Estimate

+11.75%
Upside
114
Market
127
Trefis
ABT: Abbott Laboratories logo
ABT
Abbott Laboratories

Abbott Labs (NYSE:ABT) is a diversified global healthcare conglomerate primarily operating in four segments: pharmaceutical, nutritional, vascular and diagnostics. The company has operations in more than 130 countries selling its products and services to hospitals, physicians, government agencies, retailers and wholesalers. Abbott Labs is one of the market leaders in niche areas of its segments such as autoimmune, immunoassay and vascular stents. It competes globally with healthcare giants such as Pfizer (NYSE:PFE), Merck (NYSE:MRK) and Johnson & Johnson (NYSE:JNJ).

We recently launched coverage of Abbott with a price estimate of $62, about 10% ahead of the current market price.

See Full Analysis for Abbott Here

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In 2011, Abbott recorded revenues of more than $38 billion and net income of more than $7 billion. In October, the company announced its plan to split its business into two distinct companies in order to unlock value. One company will have products focused on generic, nutritional, diagnostic and vascular products and the other will be focused on research-based proprietary pharmaceuticals such as Humira. Our current analysis does not reflect the planned split.

Abbott’s Business Segments

Abbott’s products are organized into four major segments:

  1. Pharmaceuticals – Primary care and specialty care drugs that prevent and treat conditions such as autoimmune diseases, lipid disorders, kidney diseases, prostate cancer, thyroid diseases and HIV.
  2. Nutritionals – Pediatric, adult, healthy living and sports nutrition products such as infant formulas, snack bars and meal replacement shakes.
  3. Vascular – Minimally invasive medical devices for heart diseases, strokes, carotid artery diseases, and other serious vascular conditions
  4. Diagnostics – Systems and tests used for screening for drugs of abuse, cancer, therapeutic drug monitoring, fertility, physiological diseases and infectious diseases such as hepatitis and HIV.

Emerging Markets Driving Growth in Healthcare

Emerging markets provide a substantial growth opportunity for the healthcare industry. Per capita income levels in many emerging markets are rising rapidly, which should lead to better insurance coverage and better healthcare. Additionally new studies and increased access to information have led to rising health consciousness in these markets.

Abbott generates nearly 25% of its total revenue from emerging markets. We believe that Abbott will be able to leverage its global footprint and strong brand in order to take advantage of untapped opportunities and drive further growth in these markets. However, ineffective patent laws in many of these countries have proven to be a hurdle for large pharmaceutical companies.

Acquisitions, Partnerships & Licensing Arrangements Provide Upside

In 2010, Abbott completed various acquisitions including Solvay Pharmaceuticals, Facet Biotech Corporation and Piramal Healthcare, bringing in a large portfolio of pharmaceutical products and an expanded presence in fast-growing global markets. To strengthen its position in diagnostics, Abbott acquired Starlims Technologies Limited. In addition, Abbott signed a licensing and supply agreement with Zydus Cadila. Under the agreement, Abbott will gain rights to many Zydus products in major markets, primarily in Eastern Europe, Latin America and Asia, where Abbott has a strong and growing presence. These acquisitions and licensing arrangements present significant upside potential for revenue growth and increases in Abbott’s market share.

Innovation to Drive Growth as Major Patents Expire

The pharmaceutical sector is undergoing a major transformation due to the loss of patent protection for several blockbuster drugs. By the end of 2013, over 10 blockbuster drugs will lose their patents, representing a potential loss of nearly $100 billion in revenues for major pharmaceutical players. The threat of generic drugs growing at a rapid pace is also looming over pharmaceutical companies. These companies are looking to rationalize their R&D spending and find innovative ways to discover and market new molecules in order to sustain top-line growth. Innovation and advancement in its pipeline will help Abbott increase market share in the nutritional, vascular and diagnostics segments. However, meaningful near-term pharmaceutical growth is unlikely as patent expiries for major drugs such as Humira, TRILIPIX / TriCor and Kaletra will likely offset any growth from an improved pipeline.

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