Abbott Laboratories: Protect your capital with this SWAN stock (NYSE: ABT)


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Speculative growth stocks have seen a sharp reversal in price and valuation over the past few weeks and days. This reversal has disproportionately affected tech stocks that are not yet profitable, and CNBC commentator Jim Cramer went so far as to advise investors to sell shares in businesses that don’t make money.

This brings me to Abbott Laboratories (ABT), which may be a good option for investors looking for stability in turbulent times. In this article, I highlight why ABT can be an ideal outfit to get a good night’s sleep for those looking for long-term wealth building, so let’s get started.

House your capital in this SWAN stock

Abbott Laboratories is a global health technology leader with a broad portfolio, including diagnostics, medical devices, nutrition and branded generic drugs. It serves people in 160 countries and over the past 12 months has generated $42 billion in total revenue.

Notably, Abbott is almost a dividend king, having increased its dividend payout for 49 consecutive years. ABT’s total return has also beaten that of the S&P 500 (SPY) over the past 3, 5 and 10 years. As seen below, ABT has generated a total return of 236% over the past 5 years, far exceeding the 116% return of the S&P 500 over the same period.


ABT Total Returns

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Abbott’s recent price performance hasn’t been exceptional though, as it has fallen from the $142 level to currently $125.83, which translates to an RSI score of 31.8, indicating that it is now in oversold territory. Nevertheless, ABT demonstrated the characteristics of stability by posting a beta score of 0.69 over 3 years as shown below.


ABT Beta


Additionally, ABT’s business is running on all cylinders, with revenue growing 23% year-over-year (22% excluding currency effects) in the third quarter to $10.9 billion. This was driven by strong growth across the company’s four main business areas, led by the Diagnostics, Established Pharmaceuticals and Medical Devices segments, posting growth of 48%, 15.1% and 14.6% respectively. % year-on-year.

Abbott benefits from its reputation and strong relationships with healthcare providers, and is working to improve its efficiency. This includes streamlining its distribution channels and opening facilities in lower-cost locations in China and India. Additionally, Abbott’s FreeStyle Libre blood glucose monitor franchise is widely recognized as one of the most innovative products the company has ever launched.

ABT’s track record of high-end, innovative products, combined with cost savings, has resulted in some of the best margins in the industry. This earned ABT an A+ rating for profitability. As shown below, ABT has an EBITDA margin of 29%, well above the industry median of 6%.


ABT profitability

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Looking ahead, ABT is well positioned for growth, as management expects EPS growth of 40% for the full year 2021 compared to 2020. In addition, healthcare becomes an additional component more important to the economy. This is supported by the 65+ senior adult age group which is the fastest growing demographic group in the United States, with 1 out of 5 should fall into this age group by 2040.

The company is also making good progress in the vascular segment with its recent acquisition of Walk Vascular, a commercial-stage company with the minimally invasive thrombectomy system, JETi, which removes peripheral blood clots. Management sees this as a large, high-growth area where it can leverage its existing business presence.

Risks to ABT’s long-term strategy include falling birth rates around the world, which could put a damper on its nutrition segment. ABT also operates in a competitive space, which requires a fair amount of R&D spending to stay ahead of the competition. Finally, patients’ lives depend on ABT’s products, which opens the door to legal action and reputational damage if its products fail to meet expectations.

Meanwhile, ABT maintains a very strong A+-rated balance sheet with a net debt to EBITDA ratio of just 0.7x, below the 1.9x and 1.4x levels of 2019 and 2020, respectively. Although the dividend yield of 1.5% is not considered high yield, it comes with a low payout ratio of 37%, a respectable dividend CAGR of 11.7% over 5 years and 49 consecutive years of annual growth.

I see value in ABT at the current price of $125.83 with a forward PE of 24.9x, given the quality of the company, the strength of the balance sheet and the potential for growth going forward. CFRA has a Buy rating with a 12-month price target of $141, noting the following in its recent research report:

We believe ABT shares, trading at 24.2x our 2022 EPS estimate, will outperform their peers. Given ABT’s diversified healthcare business, strong financial position and steadily growing dividend, we believe the company is well positioned to capture market share and investor interest.

In the short term, we expect ABT to benefit from significantly higher revenues due to sales related to the Covid-19 test. Over the long term, ABT’s shares have great upside potential due to the company’s earnings growth power, which is driven by a plethora of recent and upcoming innovative offerings (e.g. Freestyle Libre 3 and structural products for the heart) in all divisions of the company.

Analysts on the sell side have a consensus Buy rating with an average price target of $142, implying a potential total return of 14% over one year, including dividends.


ABT Wall Street Ranking

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Key takeaway for investors

Abbott Laboratories has a business worth its salt with many innovative products essential to the delivery of healthcare. It should benefit from the favorable winds of an aging population, as well as cost savings and continuous innovation. Meanwhile, ABT maintains a fortress balance sheet and continues its impressive dividend track record with the latest hike (paid in January). ABT can be an ideal stock for returns to sleep well at night.


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