Abbott (ABT) Stock Still Looks Cheap On Cash Flow And Earnings
Abbott Laboratories stock has fallen about 27.4% over the past year, yet both its intrinsic value estimate using a Discounted Cash Flow (DCF) approach and the market multiple checks point to the shares trading at a discount to what the underlying business may be worth.
- The share price decline of roughly 27.4% over the past year means investors are looking at a healthcare giant whose market value has moved well below where it stood, even as its business profile remains diversified across devices, diagnostics, nutrition and pharmaceuticals.
- Recent attention on growth from areas such as continuous glucose monitoring and broader diagnostics can support expectations for future cash flows, while ongoing legal and regulatory issues around nutrition products may weigh on how much of that cash flow investors are currently willing to pay for.
- Abbott screens as undervalued across the broader checks, with 6 out of 6 valuation tests suggesting the current price looks low relative to earnings, assets and cash flow.
The issue now is whether that apparent discount offers enough margin of safety for Abbott Laboratories given the mix of growth drivers and ongoing risks.
Find out why Abbott Laboratories' -27.4% return over the last year is lagging behind its peers.
Is Abbott Laboratories a Bargain on Cash Flow?
The Discounted Cash Flow (DCF) model here uses projected free cash flows to estimate what Abbott Laboratories stock might be worth today. On the cash generation side, Abbott produced about $7.1b of free cash flow over the latest twelve months, and the model assumes those cash flows continue growing rather than shrinking or swinging deeply negative.
Based on those growing cash flow projections, the two stage DCF points to an estimated intrinsic value of about $147.90 per share. This estimate implies the stock screens around 36.5% undervalued versus the current market price. The recent closure of the criminal probe into Abbott’s baby formula plant, with the focus shifting to a civil settlement, helps explain why the market still assigns a discount despite solid cash generation and diversified healthcare exposure.
Overall, the DCF output suggests Abbott Laboratories stock currently appears undervalued relative to the cash flows implied by this model.
Our Discounted Cash Flow (DCF) analysis suggests Abbott Laboratories is undervalued by 36.5%. Track this in your watchlist or portfolio, or discover 44 more high quality undervalued stocks.
Is Abbott Laboratories Still Cheap on Earnings?
The P/E ratio is a useful yardstick for Abbott Laboratories because earnings remain a key focus for investors in large, diversified healthcare companies.
Abbott Laboratories trades on a P/E of about 26.2x, which sits slightly below the Medical Equipment industry average of roughly 26.6x. When compared with a peer average of 39.5x, the stock also comes across as priced more conservatively than many other large healthcare equipment companies.
The tailored fair P/E ratio for Abbott Laboratories is estimated at about 33.1x, which is higher than the current 26.2x level. That gap indicates the market is currently paying less for each dollar of Abbott Laboratories earnings than this framework would imply based on its size, sector, and risk profile.
On the P/E multiple, Abbott Laboratories stock appears undervalued relative to the earnings level this model would typically support.
See what the numbers say about this price — find out in our valuation breakdown.
The Abbott Laboratories Narrative: What Would Justify Today's Price?
Simply Wall St Narratives for Abbott Laboratories pick up where the valuation work leaves off by spelling out which combinations of growth, margins and earnings would need to hold for Abbott Laboratories' stock to be worth materially more or less than it is today. Each Narrative ties a fair value estimate to a clear storyline about Abbott Laboratories' potential catalysts and risks, so you can track over time which version of events seems to be unfolding on the Community page.
Be one of the first voices in the Simply Wall St community to set out a number driven narrative on Abbott Laboratories. Weigh in on whether developments like the Exact Sciences acquisition, the closed criminal probe into its baby formula plant and the PediaSure lawsuit meaningfully change the long term risk and return trade off for the stock.
Share a clear, data backed view on how Abbott Laboratories' growth, margins and execution could develop from here. Then track over time how that thesis holds up as new results and news arrive.
Do you think there's more to the story for Abbott Laboratories? Head over to our Community to see what others are saying!
The Bottom Line
Abbott Laboratories screens as undervalued on both the Discounted Cash Flow (DCF) intrinsic value estimate and the earnings multiple view, which is a rare alignment. The key question is whether the current discount properly reflects ongoing legal and regulatory risks around its nutrition products or is overshooting them. For investors, the crux is whether Abbott Laboratories can sustain the cash flow and earnings profile implied by these models while working through those issues. How that trade off between legal overhang and cash generation resolves is likely to decide whether today’s apparent discount proves attractive or a value trap.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com