ABT Abbott Laboratories
Quality device compounder; fair value near the high $80s, a modest discount to price.
The story
Abbott is a diversified healthcare franchise. Its growth engine is medical devices (FreeStyle Libre CGM, structural heart, electrophysiology), backed by steady diagnostics, nutrition and branded generics. With COVID-testing revenue fully gone, it is a mature compounder with a long runway in diabetes tech and devices. Its scale, regulatory moats and the Libre ecosystem support mid-to-high single digit organic growth.
Growth of 7% reflects the organic device-led rate after the COVID-testing comedown, not the distorted 0.5% five-year CAGR. The 24% target margin sits between today's GAAP margin, which is depressed by amortization and litigation, and the adjusted margin of about 23-25%, as mix shifts toward devices. Sales-to-capital of 1.5 measures incremental reinvestment rather than the goodwill-inflated historical 0.69. That historical figure is the main reason the baseline lands at $35.
Value drivers
| Revenue growth (Y1) | 7.0% |
| Terminal growth | 3.0% |
| Forecast horizon | 10y |
| Target operating margin | 24.0% |
| Years to target margin | 5 |
| Sales-to-capital | 1.50 |
| Beta | 0.85 |
| Failure probability | 1.0% |
| Cost of capital (WACC) | 8.9% |
| Terminal WACC | 9.5% |
Valuation bridge
| PV of explicit FCFF | 55.54B |
| PV of terminal value | 65.21B |
| Equity value | 114.55B |
| ÷ shares → per share | $66.20 |
Projected free cash flow to the firm
| Yr | Revenue | Growth | Margin | NOPAT | Reinvest | FCFF | PV |
|---|---|---|---|---|---|---|---|
| 1 | 48.29B | 7.0% | 20.2% | 7.51B | 2.11B | 5.40B | 4.96B |
| 2 | 51.46B | 6.6% | 21.1% | 8.38B | 2.11B | 6.27B | 5.29B |
| 3 | 54.60B | 6.1% | 22.1% | 9.29B | 2.10B | 7.20B | 5.58B |
| 4 | 57.70B | 5.7% | 23.0% | 10.25B | 2.06B | 8.18B | 5.83B |
| 5 | 60.71B | 5.2% | 24.0% | 11.23B | 2.01B | 9.22B | 6.03B |
| 6 | 63.61B | 4.8% | 24.0% | 11.76B | 1.93B | 9.83B | 5.90B |
| 7 | 66.37B | 4.3% | 24.0% | 12.27B | 1.84B | 10.44B | 5.76B |
| 8 | 68.95B | 3.9% | 24.0% | 12.75B | 1.72B | 11.03B | 5.59B |
| 9 | 71.32B | 3.4% | 24.0% | 13.19B | 1.58B | 11.61B | 5.40B |
| 10 | 73.46B | 3.0% | 24.0% | 13.59B | 1.43B | 12.16B | 5.20B |
Key risks
- NEC infant-formula litigation and nutrition recall liabilities
- CGM price competition from Dexcom and others, plus reimbursement pressure
- Diagnostics weakness from China volume-based procurement and post-COVID normalization
Catalysts
- Libre adoption among non-insulin type 2 patients and dual glucose-ketone sensors
- Electrophysiology and structural heart launches (Volt PFA, TriClip) driving device mix and margin