It Pays to Seek Shelter in this Pharmaceutical Firm
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By Nathan Slaughter Editor, Half-Priced Stocks Visit this link to learn more about this premium newsletter. View our subscription options for Half-Priced Stocks. |
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Whenever economic uncertainty roils the markets, investors often turn to the defensive healthcare sector. After all, people get sick and need medical treatment regardless of economic conditions, which makes a company like Abbott Laboratories (NYSE: ABT) somewhat resistant to a downturn.
Abbott is a leading pharmaceutical provider, riding the success of blockbuster products like Humira — a drug used to treat autoimmune disorders such as rheumatoid arthritis and Crohn's Disease. The firm is also a major supplier of diet shakes and other nutritional products, as well as diagnostic equipment for blood banks, hospital labs and other testing and screening facilities. Finally, the company also manufactures stents and other instruments to promote vascular health.
Combined, Abbott took in more than $25 billion in revenues from over 130 different countries last year and generated operating cash flows in excess of $5 billion. And at the moment, each of the firm's business segments is carrying its own weight.
Pharmaceutical revenues (which account for over half of the total) were up nearly +19% last quarter, thanks in large part to surging sales of Humira (+54%) and HIV drug Kaletra (+25%). Meanwhile, the release of Abbott's new Xience drug-eluting stent pushed international sales in the vascular division up +34%. Finally, diagnostic equipment and nutritional products (which include popular children's brands like Pedialyte and Similac) both registered sharp double-digit gains as well.
Looking ahead, all but one of Abbott's drugs will enjoy patent protection throughout 2008, and there are plenty of potential growth drivers on the horizon. For example, Humira has just been approved to treat psoriasis (which afflicts 125 million people globally), and sales of that one drug could reach $4 billion this year. And with a huge research and development (R&D) budget of $2.3 billion annually, the company has a number of other promising drugs in the late stages of clinical trials.
Overall, Abbott's well-rounded product line addresses every stage of the healthcare process, with products ranging from prevention to diagnosis to treatment. And that balance has helped push earnings steadily higher over the years, from $1.71 per share in 2001 to an expected $3.20 per share in 2008 (+87%). It's also worth noting that the firm hasn't missed a dividend payment for 336 consecutive quarters dating back to 1924 — and those distributions have been raised every year for the past three decades.
And the stock has held up relatively well in the face of a withering market sell-off. With steadily rising dividend payouts and a near recession-proof revenue stream, ABT is a solid choice for defensive income-oriented value investors.
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