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Abbott Laboratories (or Abbott) is a global healthcare company that manufactures medical devices and produces pharmaceuticals and is headquartered in Abbott Park, Illinois. The organization took its name from Chicago physician Wallace Calvin Abbott, who founded the Abbott Alkaloidal Company in Ravenswood in 1888. The organization produced alkaloid granules from medicinal plants and rapidly became a success due to Abbott’s innovative approach. Thirty-four years later, the organization moved to North Chicago, Illinois.
Currently, Abbott Laboratories focuses on the production of medical devices, nutritional products, and pharmaceuticals and sells them worldwide. Abbott’s Established Pharmaceutical’s Division (EPD) develops and sells branded generic pharmaceuticals for the treatment of dyslipidemia, hypothyroidism, hypertension, moderately severe infections, cystic fibrosis, and irritable bowel syndrome. The company’s Diagnostic Division offers core laboratory systems in the areas of hematology, oncology, and clinical chemistry.1 Among the other divisions of the firm is Abbott Diabetes Center, Abbot Vascular, Abbot Molecular Diagnostics, and Abbot Point of Care. The company’s Chief Executive Officer since 1998 is Miles D. White, who started working for Abbott Laboratories in 1984. The main institutional holders of Abbott Laboratories’ holdings are the Vanguard Group, BlackRock, State Street Corporation, and Capital Research Global Investors. The main mutual fund holders of Abbott’s holdings are the Vanguard Total Stock Market Index Fund and the Investment Company of America.
In 2017, Abbott Laboratories reported a net income of $477 million with annual revenue of $27.390 billion. In 2018, the company’s cash generated from operating activities was equal to $6.300 billion.2 This means that the organization is able to generate positive cash flows from its daily business operations. With the total cash generated by operating activities being equal to $5.570 billion in 2017 and $3.203 billion in 2016, it is possible to state that the true profitability of Abbott Laboratories is high and on the rise. The company has strong operating cash flows as it collected more money from customers than spent on normal recurring operating expenses. Despite the fact that there are major uses of cash in financing and investing activities, the business has generated positive cash and cash equivalents at the end of the year 2018.
As of September 11, 2019, the share price of Abbot Laboratories is equal to $83.05. Given that the earnings per share are equal to $2.18, the price-to-earnings ratio is equal to 38.09.3 Such a high P/E ratio may be an indication of the company’s positive future performance and investors’ willingness to pay more for Abbott’s shares. However, it is important to compare this ratio with the ratio of the industry company Bio-Rad Laboratories. As of September 2019, the P/E ratio of Bio-Rad Laboratories is equal to 100.98 (the share price is equal to $326.18, and the EPS is equal to $3.23).4 Thus, the P/E ratio of Bio-Rad Laboratories is two times greater than that of Abbott Laboratories.
Being a fundamental measure of share performance, the EPS helps assess the investment potential of a company’s shares. It can be seen that Bio-Rad Laboratories is more capable of generating a significant dividend for investors, given that its EPS is $3.23, whereas the EPS of Abbott Laboratories is just $2.18. However, since Bio-Rad Laboratories’ shares are four times more expensive than those of Abbott Laboratories, comparing two companies on the basis of the EPS ratio does not make much sense. Bio-Rad Laboratories’ dividend yield currently sits at 0.0%, whereas Abbott Laboratories’ dividend yield is equal to 1.5%.5 This means that the cash return from Abbott Laboratories’ shares is greater than that from Bio-Rad Laboratories’ shares. Thus, Abbott Laboratories may be viewed as a better investment opportunity.
- Abbott Laboratories, “Abbott at a Glance,” 2019, Web.
- Abbott Laboratories, “2018 Annual Report,” 2018, Web.
- “ABT: New York Stock Quote,” Bloomberg Markets. 2019, Web.
- “BIO: New York Stock Quote,” Bloomberg Markets. 2019, Web.
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Abbott Laboratories. (2018). 2018 annual report. Web.
Abbott Laboratories. (2019). Abbott at a glance. Web.
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