Abbott (ABT) is a huge American health/lab company that sells medical devices, drugs, food, and many other products you use or have heard of. While the market is basically close to all time highs has lagged significantly the broader indexes. Being down over 30% from its highs and down over 22% this year so far. The question becomes is this a potential buy. Let’s go over the business itself.
Abbott operates in 4 main segments. Medical Devices, Pharmaceuticals, Nutrition, and Diagnostics. Based on your views of the segments is where the bullish or bearish segments are going to come from. Let’s start with hands down their gold star division.
1. Pharmaceuticals: this imo is the second best part of their business. They sell a lot of both over counter and prescribed drugs that is growing significantly in emerging markets. This company has a big footprint internationally which helps keeps them diversified. As the middle class continues to develop in emerging markets Abbott will be a huge beneficiary of this while also maintaining their position in already established markets like the US where a large middle class exists. On top of it as the population ages so to will the need for drugs will also increase which will benefit both this segment and the previous one. This segment has also seen nice growth over the use as all these things continue to play in.
Next we are going to talk about their weak segments and where most of the bearish sentiment comes from.
3. Nutrition: this segment mainly deals with baby formula and protein drinks. This segment makes up around 18% of the total business. Ensure is the top brand in this category as well as Similac. This segment has recently experienced earnings decline due to an overall broad consumer pushback on years of price hiking. We have seen this sector wide with companies like Pepsi, General Mills, Hershey, and many others. This is causing a decline in sales and earnings within this. On top of it there are currently lawsuits thats creating an extra level worry around their baby formula causing NEC in infants. These lawsuits have had mixed outcomes while some Plaintiffs have been able to win large sums while others have been dismissed. Federal trials are expected to start in May so its important to keep on eye this. This is a similar issue that both Pfizer and Johnson & Johnson had in the past.
4. Diagnostics: this segment is where a lot of risk is going to come from. This segment experienced significant growth around the pandemic due to Abbotts Covid-19 instant tests. Once the pandemic died off so to this part of the business which now declining. Abbott recently made the decision to purchase the company Exact Sciences for a $22 billion dollar enterprise value ($2 billion of debt). This money will come from debt and cash on hand. Abbott already has around $8 billion dollars of cash on hand and their total debt is only around $9 billion so while big they absolutely can afford to take this hit. Exact Sciences is a growing company within the cancer diagnostics fields that makes products like Cologuard and recently came out with Cancerguard. This is a big purchase and a gamble as it all depends on how well these products will continue to grow and how well Abbott can push these into the core business and stop the free fall going on this segment. It is worth pointing out that Abbott has done extremely well at integrating companies into their core business in the past. A good example being St. Judes Medical Devices which is now a significant money maker for the company.
In terms of financials the balance sheet is extremely healthy with no red flags. Sales, cash, and income continue to increase every year except 2025. However it’s important to mention that in 2024 Abbott received a huge amount of money due to tax reasons which greatly boosted their income and eps in 2024 so I would try to ignore because it is an outlier. The company currently trades at a 16x Ev/EBITDA multiple which is the cheapest it’s been in years. It is also a Dividend King meaning they have been increasing and paying a dividend every year for 50 years straight. With that kind of multiple for a stable steady growth company with these kinds of prospects and moat I think this is a high quality stock that is a buy.
I am curious to hear your thoughts on what you think. Thank you!