A detailed quantitative analysis by Abbott Laboratories (ABT) is linked here. Below are some highlights from the analysis linked above:
Company description: The diversified healthcare products company is now focusing on nutrition, diagnostics, generics and medical devices following the spin-off of its research and development-based prescription drug business in early 2013.
Fair value: When calculating the fair value, I take into account the differential fair value of the present value MMA along with these four fair value calculations. A detailed description can be found on page 2 of the linked PDF:
1. Avg. High yield price
2. 20-year DCF award
3. Avg. P / E price
4. Graham Number
ABT trades at a premium to all four of the above ratings. Since the material book value of ABT is not meaningful, a Graham number cannot be calculated. Including the NPV MMA differential, the stock is trading at a premium of 82.8% over the calculated fair value of $ 61.74. ABT does not deserve any stars in this area.
Dividend analytical data: There are three possible stars and three key metrics in this section. A detailed description can be found on page 2 of the linked PDF:
1. Free cash flow payout
2. Debt to total capital
3. Key Metrics
4. Dividend Growth Rate
5th years Div. growth
6. Rolling 4 year old Div. > 15%
ABT has earned a star for 2.) above in this section. The stock earned a star because its recent debt to total capital was less than 45%. The company has paid a cash dividend to shareholders every year since 1926 and has increased its dividend payments for 48 consecutive years.
Dividend Income vs. MMA: Why would you take the equity risk and invest in a dividend stock when you could get a better return on a much less risky money market account (MMA) or a government bond? This section compares that stock’s earning power to a High performance MMA. There are two points covered in this section. A detailed description can be found on page 2 of the linked PDF:
1. NPV MMA Diff.
2. years to> MMA
The negative NPV MMA Diff. means that on a dividend basis, the dividend income from an investment in ABT will be less than a similar amount invested in MMA, which has a 20 year average rate of 2.74%. If ABT increases its dividend to 7.9% per year, it will never match an MMA that gives an estimated 20 year average rate of 2.74%.
Peers: The company’s peer group includes: Bristol-Myers Squibb Company (BMY) with a yield of 3.2%, Johnson & Johnson (JNJ) with a yield of 2.4% and Eli Lilly & Co. (LLY) with a yield of 1.6%.
Conclusion: ABT did not deserve any stars in the Fair Value area, earned one star in the Dividend Analytical Data area and did not deserve any stars for a total of one star in the Dividend Income vs. MMA area. This classifies ABT quantitatively as 1-star Very weak Camp.
With my D4L-PreScreen.xls Model, I decided that the stock price would have to fall to $ 69.04 before ABT’s NPV MMA differential rose to the minimum of $ 500 that I’m looking for on a stock with 48 years of consecutive dividend increases. At that price, the stock would yield 2.1%.
Resetting the D4L-PreScreen.xls The dividend growth rate model and solution required to generate the targeted MMA differential of $ 500. The calculated rate is 12.4%. This dividend growth rate is higher than the 7.9% used in this analysis, so there is no margin of safety. ABT has one Risk assessment of 1.75, which it classifies as a medium risk stock.
ABT discovers, develops, manufactures and sells health products. Products include generic branded drugs that are manufactured internationally, marketed, and sold outside of the United States. The company has strong positions in a variety of healthcare product categories and global markets, with a focus on expanding into emerging markets.
The company’s free cash flow payout of 145% (versus 46%) is way above my maximum. Additionally, debt to total capital of 37% (versus 43%) is below my preferred maximum of 45%. The stock trades at a significant premium to my calculated fair value of $ 61.74. That, its low yield and dividend growth rate, is what keeps me from taking a position in the stock.
Disclaimer: The material presented here is for informational purposes only. The above quantitative stock analysis, including the star rating, is mechanically calculated and based on historical information. The analysis assumes that the share will develop in the future as it has in the past. In general, this is never true. Before buying or selling stocks they should do your own research and arrive at your own conclusion. Please see my disclaimer for more information.
Full disclosure: At the time of this writing, I did not hold a position in ABT (0.0% of my dividend growth portfolio) and have been in JNJ for a long time. Show a list of all my dividend growth portfolio holdings Here.
On the subject of matching items:
– Cisco Systems, Inc. (CSCO) dividend stock analysis
Tags: ABT, BMY, JNJ, LLY,