ABT - Abbott Labs

[Viking]

Abbott is a stock I have liked for the past year. Big pharma is currently out of favour given:

1.) US Health Care Reform

2.) European austerity measures

3.) patent cliff for many players

 

If you are interested in ABT listen to or read the Q4 Q&A. It is full of great questions and answers to ALL the current 'issues' dogging ABT: http://seekingalpha.com/article/248886-abbott-laboratories-ceo-discusses-q4-2010-earnings-call-transcript  

 

Regarding Abbott, analysts appear to be quite concerned about Humira. Management basically says that analysts are being way too aggressive in how fast they are estimating competitors will get approved and be able to take share from Humira. Analysts also do not believe that Abbott can continue to grow earnings by +10% over the medium term. CEO response: "And when I look at models, of where the main disconnects are, it's not so much in estimating patented pharma, it's in estimating the performance of all the other businesses that represent the diversity of Abbott and in particular, other geographic markets. So if I were going to advise analysts where to look for how sustainable is the growth future of Abbott, I would encouraged them look not only at the patented form of pipeline which also think is underappreciated, but I would look at the Established Products business, the Nutritionals, the Diagnostics, the Devices and in particular, the geographic expansion opportunities because that's where most of the disconnects are." ABT has made significant aquisitions/investments in getting set up in the developing world (source of most of the one time cost items this year) that will pay off in 5 to 10 year.

 

Current Price = $46.12

2010 Earnings = $4.18 (GAAP = $2.96)

2011 Est Earnings = $4.60 (GAAP = $3.80; PE = 12)

Div = $1.76 = 3.8% (estimate by late Feb should go to $1.94 = 4.2%)

 

Earnings should grow at low double digits the next few years. Unfortuantely, as with most pharma, there is alot of noise - and 'one time' items - in earnings; in 2011 ABT has already announced they are eliminating 1,000 jobs in the US. Stock was trading at current level in Dec 1998. Since then, their earnings, dividend and business have grown significantly. I hold ABT and view it almost like a bond holding (high secure dividend, cheap stock price with great upside as business chugs along waiting for sentiment to change). My goal with a holding like this is to get 10 to 12% total return per year.

 

[beerbaron]

Anybody has considered buying a pharma index instead of single pick? Pharma is out of most person's circle of competence so a better play would be an index.

 

BeerBaron

[S2S]

Viking, have you done some digging on tasocitinib (recently renamed to tofacitinib), Pfizer's late-stage compound that has been shown to possess similar efficacy to Humira but in a more convenient oral dosing? Others are developing their own oral RA drugs as well.

 

Much of the investment case on Abbott boils down to whether you're bullish on Humira, given it contributes 50% (and rising) of total OP. We aren't. Q4 results where the company's other businesses missed estimates only seemed to confirm our thought.

 

Anybody has considered buying a pharma index instead of single pick? Pharma is out of most person's circle of competence so a better play would be an index.

 

BeerBaron

 

Amen.

[Viking]

S2S, the risks to Humira were discussed in detai on the call; my read is there is a risk but the timing & magnitude is likely a little further out than current market sentiment and ABT is doing some things to offset the impact when it does happen down the road. My guess is the price of the stock already discounts a pretty bearish outcome for Humira so I am happy to hold at current levels. 

 

Analyst Q: "Clearly management has a view about the sustainability of HUMIRA that's a little different from a sentiment or consensus, so maybe you just can share with us some of the things people are not appreciating about the sustainability of HUMIRA franchise?"

 

CEO A: "I'll give you a couple of things. First of all with regard to sentiment on HUMIRA, I don't know that there's anything a company can do to change the sentiment on a particular product or business, or whatever. I can tell you after 12 years in this job that there had been so many times that I've listened to sentiments and three-year later, that sentiment was clearly wrong. I have never seen an analyst yet that went back and said, "Boy, I was wrong". I would tell you we're not whistling to the graveyard about any kind of futures here. We know that some of the competitive offerings coming. We all compete, they will have success, they will have some level of success and we also know it will take them some years to establish themselves to have that success. That's a fact. That's model-able. That's model-able by us, by them, by you, by any other people. We know that Biosimilars will have some impact on the product over time. The question is magnitudes and trajectories. And HUMIRA is a very large product, as you know, and we've obviously studied all those things very carefully and in lot of detail. I think that the analyst community or the Street or investment community sometimes takes a fairly precipitous, sudden look at things and things happen very quickly when they don't. And I think that trends, whether it be competitive products or Biosimilars or other things that will affect the biologics market, will happen less precipitously than what you see happening to an Oral Solid that is a primary cure drug. The models are not the same, they're not going to be the same. That's not to say there won't be impacts on HUMIRA. There will be. Obviously HUMIRA's growth will slow, at some point it will begin to decline, but it will be a large and robust product, because it's a very, very fine product in terms of what it does. It will be successful for a long time. Now that said, it's also our job to replace the sales and profits of that product with others, and that's why we go back to our pipeline. I think pipeline is somewhat underappreciated. So the biggest difference I think that we may have with the Street over the trajectory with HUMIRA is what the shape of the trajectory looks like in over how many years. And whether pipeline offering is coming and so fourth, obviously, we placed and continued the growth in our patented Pharma business overtime. So, I would tell you, I don't think we've taken an unrealistic view of it, but I -- I don't know how to combat dueling models and dueling projections between what the company thinks and what analyst may think of competitive offerings. I think competitive offerings will be successful. I just don't think that they're going to be based on all of our analysis as immediately successful in such a precipitous manner, and I think when you look at the entire mix of products, whether it's in the coming portfolio or how HUMIRA does or the geographic mix, we don't happen to share Wall Street's view. So I think the only unfortunate thing to that is we will only be right once we've been right, which is years out and if investors choose to believe otherwise, well, they're going to miss a company that keeps steadily growing double digits. I can't say how many times I've had people project we couldn't keep doing this. And it's not smoke and mirrors and it's not magic, we managed. I guess we can do a better job communicating and explaining. At this point, I'd say I think a lot of the fears around HUMIRA have been overblown. It will face competition. It will decline at some point. The rate and timing of that will be, I believe, different than what has been projected and beyond that, there's an awful lot of very strong and powerful things coming in our pipeline to sustain our growth. So I think we've managed it."

[henrysalt]

Anybody has considered buying a pharma index instead of single pick? Pharma is out of most person's circle of competence so a better play would be an index.

 

BeerBaron

 

I actually prefer using Ed Owen's VGHCX.

 

 

[roundball100]

Viking - I recently doubled my holding of ABT.  I can't predict the future any better than anyone else, but from what (public) information I have read, my sense is that (1) the whole sector is out of favor, and (2) ABT seems to be fairly priced plus good dividend.  I prefer holding individual stocks to sector ETFs since I believe (perhaps wrongly) that it gives me a better sense of why things go up or down. 

[Packer16]

The 2 year (Jan 2013) 45 LEAPs provide some pretty cheap leverage on ABT.  If the shares reach Morningstars target price of $68 (48% up) the LEAPs would go up 314%.  Another way to look at is borrowing @ 4.5% with a free downside put.

 

Packer 

[blainehodder]

Any updated thoughts on ABT?  I see it is a magic formula pick this morning... obviously returns on cap are great, spinoff pressure on it as people seem to like Abvie more.  Looks like a decent Greenblatt play.

[Palantir]

Sorry for the n00b q, but uhm, how do you separate AbbVie's financials from ABT's? I assume that the financials that show up on Google Finance have them prespinoff right?

[giofranchi]

I have added to my investment in ABT yesterday, and I’ll add some more today. I think the sell-off wasn’t really justified. Now the stock is trading near its 52 week low of $36.

 

ABT has probably the best and longest track record in the pharma industry, they are very diversified (in fact ABT could be viewed as a "basket" of different businesses in the healthcare sector), they benefit from secular tailwinds, and have proven to be keen and shrewd at M&A.

 

It pays a good (2.8%) and imo very safe dividend (distributing just 30% of their net income).

 

I attach a recent presentation: “Abbott: A Growth and Income Investment”.

 

Cheers,

 

Gio

JPM_Presentation_01.07.2016.pdf

[giofranchi]

Abbott to Acquire St. Jude Medical

 

http://www.prnewswire.com/news-releases/abbott-to-acquire-st-jude-medical-300259246.html

 

Cheers,

 

Gio

[Phaceliacapital]

Yes, healthcare consolidation continues...

[giofranchi]

Yes, healthcare consolidation continues...

 

At least ABT has a long track record of doing M&A successfully... Though I cannot say if this large acquisition has some merits or otherwise will cost shareholders money.

 

Cheers,

 

Gio

[giofranchi]

I have read what I could find about the St. Jude Medical deal and my first impression has been confirmed: St. Jude Medical is a wide moat business that I like, what I don’t like is the debt load ABT has accepted in order to acquire the company. It still makes me nervous.

Therefore, I have decided to sell ABT, and to watch how the integration of St. Jude Medical goes from the sidelines. Meanwhile I have redeployed the proceeds in MKL.

 

Cheers,

 

Gio

 

[giofranchi]

Abbott Labs’ Stock Offers a 20% Return

http://www.barrons.com/articles/abbott-labs-stock-offers-a-20-return-1486790352

 

Cheers,

 

Gio

[Guest MarkS]

I've just started looking at Abbott, along with PFE.  Does anyone have any insight about the Allere fiasco.

 

Thanks

Mark