Abbott’s peers include Johnson & Johnson (NYSE:JNJ), Merck & Co., Inc. (NYSE:MRK), Bristol Myers Squibb Co. (NYSE:BMY), and Teva Pharmaceutical Industries Ltd (NYSE:TEVA). There is a very wide spread of forward earnings multiples in this peer group. Teva appears the cheapest from that perspective, with the current pricing and analyst expectations actually giving it a five-year PEG ratio slightly less than 1, but Johnson & Johnson and Merck have forward P/Es in the 11-13 range and those are considerably larger companies. However, in each of these cases the sell-side’s expectations are generally for very strong earnings growth and so we would be careful of taking the attractive earnings multiples at face value. In terms of dividends, Merck and Bristol Myers Squibb stand out for yields of roughly 4%; betas are also low, and Bristol Myers Squibb in particular has almost no correlation with broader market indices at a beta of 0.1. Of course as might be expected for pharmaceutical companies exposure to the overall economy is limited in all cases.
It’s fairly easy to evaluate Abbott Labs from an income perspective: ignore it and instead focus on higher-yielding pharmaceutical companies such as Merck and Bristol-Myers Squibb. In terms of value we do think that the stock has some positive aspects, as revenue and operating income have been up and the P/E multiples look good. It certainly seems that it might be competitive with peers such as Teva, Johnson & Johnson, and Merck though those companies have high expected earnings growth that might make them worth looking into.
Disclosure: I own no shares of any stocks mentioned in this article.