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Abbott: The New Healthcare Bellwether

Posted: Jan 27, 2009 15:07 PM by Ryan C. Fuhrmann

Tickers in this Article: JNJ, BMY, EYE, MRK, ABT

Johnson & Johnson (NYSE:JNJ) traditionally has been considered the healthcare bellwether, with a diversified geographic mix and a revenue stream that helped the company set industry trends and resist difficult economic times. As of late, mighty Johnson & Johnson has found itself a victim of patent expirations and overall struggles in its pharmaceutical division. In stark contrast, Abbott Laboratories (NYSE:ABT) faces no such issues in its drug portfolio. Further, it experiences strong growth in all of its business segments across the globe. (Learn to evaluate pharmaceutical companies in Measuring the Medicine Makers.)

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Mixing Up Powerful Results
For the fourth quarter ended December 31, 2008, pharmaceutical sales at Abbott Labs increased 9.8% to $4.6 billion on solid U.S. growth of 10.2% and international expansion of 9.5%. Abbott's drug pipeline stands in strong, favorable comparison to arch rivals J&J, Merck (NYSE:MRK) and Bristol-Myers Squibb (NYSE:BMY), all of which are experiencing a steady stream of patent expirations and dubious prospects concerning whether or not their respective pipelines can make up for sales lost to said expirations.

Quarterly sales of anti-inflammatory drug Humira again led the way for Abbott, with total sales of $1.4 billion, as U.S. and overseas sales improved more than 40% each. Sales in the other three key segments also advanced by double digits, with vascular sales up an impressive 34.7%, due in large part to solid trends in Abbott's drug-eluting stent franchise. On the acquisition front, Abbott announced its intent to purchase Advanced Medical Optics (NYSE:EYE), which manufactures optical medical devices throughout the world. Abbott's international sales accounted for 49% of total quarterly sales of $8 billion and, thanks to higher growth trends and M&A activity, will soon exceed the domestic total. (Learn more in our Mergers and Acquisitions Tutorial.)

Growth Potential
Quarterly cost of products sold barely budged, however, growing only 0.5%. A 19.9% decline in interest expense helped push net income from continuing operations up 15.5% to $1.4 billion, while a one-time gain pushed net income to just over $1.5 billion. Diluted earnings per share growth was similar, with the total reported figure growing 27.3% to 98 cents. Double-digit sales growth for the full year as well as overall cost controls pushed reported earnings ahead 35.1% to $3.12 per share. As a result, Abbott expects continued growth for 2009 and projects earnings per share to reach $3.65 to $3.70.

Bottom Line
Few companies have gone unscathed from the global economic woes of the last year, but the trend is surprising when it comes to the healthcare industry, which has been characterized as being recession-proof. In 2008, the S&P 500 fell 37%, while the healthcare industry fell 24.5%. Abbott, on the other hand, dropped by only 4% last year. Thus, Abbott's solid relative performance and its sound operating fundamentals will position it as a leader in the pharmaceutical industry for some time to come.

By Ryan C. Fuhrmann

Ryan C. Fuhrmann, CFA, has a background in portfolio management, overseeing assets for high-net-worth individuals and covering a broad array of industries from a generalist perspective. An active student of investing, he focuses on communicating his ideas as an investment writer and learning from the financial community. Ryan is also actively involved with the CFA Institute. Feel free to visit his website at www.rationalanalyst.com.

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