Company Name: Abbott Laboratories (NYSE: ABT)

Presentation Date: February 28th, 2017

Investment Managers: Frank Wang, Jason Zhao, Kitty Chen

Current Position: Long 400 shares with an average cost of $26.72

: Present price = $45.46 (close, February 27, 2017)

Recommendation:Hold 400 shares of ABT at market price

Company Overview

Abbott Laboratories (ABT)is a globally diversifiedhealthcare companybased in Illinois, whose business has four reportable segments: Established Pharmaceuticals Products, Diagnostic Products, Nutritional Products, and Vascular Products, and its business is mainly driven by first three segments. Abbott products involve a broad line of branded generic pharmaceuticals, diagnostic systems, adult and pediatric nutritionals and devices for the treatment of vascular disease. With its central mission of helping people not live just longer, but better, Abbott has put great efforts in research and development of new and next generation products and in further expanding its global presence. Such efforts havebrought it leading positions across many of its segments and multiple geographies.

Industry & Macroeconomics Environment Overview

Although uncertain exchange rates and downward pricing pressure may impose unfavorable effects on the profitability of healthcare industry, the industry overall is expected to realize prospect growth in near future due to greater healthcare expenditures, rising of middle class in emerging market, increasing chronic disease in developed market and growing aging population in next 30 years. The increased healthcare expenditures and rise of middle class are driven by the robust GDP growth in emerging market, especially in China and India, the two largest revenue drivers in the market, whose GDP growth rates stay higher than world GDP for years.

Financial Projection & Analysis

Abbott’ key strategy is to spin off its slow business and to strengthen its core business through acquisition, aside from pushing its organic growth by research and development to prepare new products launch. Currently, Abbott shares are trading at $45.08; its 20-day moving average ($43.4) is higher than 200-day moving average ($40.09), which indicates a buy signal and also implies that Abbott is in the right direction. Based on our higher margin and lower tax burden assumption, ROE of Abbott is going to increase from 6.8% in 2016 to 9.5% in 2021, and the leverage ratio, debt to equity, will drop from 1.54 in 2016 to 1.02 in 2021. Also, the sufficient free cash flow will ensure that there is enough cash on hand available to pay back the debt used to finance acquisition. The following table list out the valuation of Abbott by our projection.

Current Price / DCF Valuation Range / Comparable Valuation Range
$45.08 / $39.7~$46.62 / $37.49 ~ $44.01

Recommendation

Considering the uncertainties in exchange rates and in the post effect of integration with St.Jude Medical, wethink it is safe to hold 400 shares of Abbott at market price rather than to purchase more, because its management is applying the right strategy throughshaping its portfolio in line with its strategic priorities.