- Wondering if Abbott Laboratories at around US$87.91 is a bargain or a value trap? This article breaks down what the current price might really be telling you.
- The stock has been volatile recently, with a 6.5% gain over the last week but a 9.2% decline over the last month. It is currently down 29.2% year to date and 33.8% over the past year.
- Recent headlines have focused on Abbott Laboratories' role within the broader healthcare sector and how investors are reassessing risk and return across medical equipment stocks. This shifting sentiment provides important context for the sharp pullback in the share price.
- Despite that backdrop, Abbott Laboratories currently scores a 6 out of 6 valuation checks. The rest of this article will walk through what different valuation approaches say about the stock, and then finish with a framework that can help you think about valuation in an even more useful way.
Find out why Abbott Laboratories's -33.8% return over the last year is lagging behind its peers.
Approach 1: Abbott Laboratories Discounted Cash Flow (DCF) Analysis
A Discounted Cash Flow, or DCF, model estimates what a stock could be worth by projecting future cash flows and discounting them back to today's dollars. It is essentially asking what all of Abbott Laboratories' future cash flows are worth right now in $.
Abbott Laboratories generated trailing twelve month free cash flow of about $7.13b. The DCF model used here is a 2 Stage Free Cash Flow to Equity approach that takes analyst forecasts for several years, then extends those projections further using Simply Wall St estimates. For example, projected free cash flow reaches $14.77b in 2035, with each of the annual projections between 2026 and 2035 discounted back to today.
Putting those discounted cash flows together results in an estimated intrinsic value of $136.08 per share. Against the current share price of about $87.91, the model implies the stock trades at roughly a 35.4% discount. This indicates a notable difference between the DCF value and the market price.
Result: UNDERVALUED
Our Discounted Cash Flow (DCF) analysis suggests Abbott Laboratories is undervalued by 35.4%. Track this in your watchlist or portfolio, or discover 51 more high quality undervalued stocks.
Approach 2: Abbott Laboratories Price vs Earnings
For profitable companies, the P/E ratio is a useful way to connect what you pay for the stock with the earnings the business is already generating. It gives a quick sense of how many dollars investors are currently willing to pay for each dollar of earnings.
What counts as a normal or fair P/E depends on how quickly earnings are expected to grow and how risky those earnings are perceived to be. Higher expected growth or lower perceived risk can support a higher P/E, while slower growth or higher uncertainty usually points to a lower P/E.
Abbott Laboratories currently trades on a P/E of 24.49x. That is very close to the Medical Equipment industry average P/E of 24.51x and below the peer group average of 33.28x. Simply Wall St also calculates a Fair Ratio of 30.39x, which is the P/E that would be expected for Abbott Laboratories given factors such as its earnings growth profile, industry, profit margins, market cap and risk characteristics. This Fair Ratio can be more informative than a simple peer comparison because it adjusts for those company specific features rather than assuming all stocks should trade on the same multiple. On this Fair Ratio basis, Abbott Laboratories P/E is lower than what the model implies.
Result: UNDERVALUED
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Upgrade Your Decision Making: Choose your Abbott Laboratories Narrative
Earlier it was mentioned that there is an even better way to understand valuation, so Narratives are introduced here as a simple way for you to attach your view of Abbott Laboratories future revenue, earnings and margins to a fair value estimate and then compare that to today's share price.
A Narrative is your story about the company written into numbers, where you set assumptions for key financial drivers, see how those flow into a forecast, and then into a fair value that can help you decide whether the stock looks cheap, expensive or somewhere in between.
On Simply Wall St's Community page, Narratives are easy to use and are already being used by millions of investors, helping you compare your own fair value for Abbott Laboratories with the current price so you can judge whether it may be closer to a buy, a sell, or a hold for your portfolio.
Because Narratives update automatically when fresh news, earnings or analyst estimates are added to the platform, your story and valuation for Abbott Laboratories can adjust in real time, rather than staying frozen at the moment you first did the work.
For example, one investor on the Community page might build a Narrative that supports a fair value close to the higher analyst target of about US$143. Another might lean toward the lower target near US$92. Seeing both side by side helps you decide which set of assumptions feels more realistic before you act.
Do you think there's more to the story for Abbott Laboratories? Head over to our Community to see what others are saying!
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.
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