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From 'Street Authority': ABT. Trade this Dividend Aristocrat for a Potential +11% Gain. / Melvin Pasternak
Abbott Labs (NYSE: ABT), a member of the Dividend Aristocrats, has paid a dividend since 1926 and currently offers an attractive forward yield of about 3.4%. The yield is important in providing support for the shares in the current skittish market.
Shares are up about 23% year-to-date -- far better than the S&P 500 which is down about -3.1% so far this year. The stock's bullish technicals are supported by growing revenue and earnings projections.
The global pharmaceutical company is the world's largest producer of nutritional products. Familiar brands include Similac baby formula and Ensure nutritional shakes.
The company is also the second largest maker of diagnostic products that, for example, measure blood glucose level and immune response.
Abbott dominates other pharmaceutical companies in the anti-inflammatory medical category. Its flagship product, Humiria, is used to treat rheumatoid arthritis, psoriasis and other autoimmune disorders. Currently over 500 thousand people in 83 countries use this product. And, with the aging baby-boomer population, the company expects usage will increase 20% annually in the foreseable future.
In 2012, Humiria could become the world's best-selling drug, following the patent expiry of Pfizer's (NYSE: PFE) Lipitor. And since Humira is a difficult drug to copy, it's unlikely to face competition in the near future. The patent doesn't expire until 2016 and the drug should bring in at least $11 billion in revenue for Abbott by that time.
In addition to Humira, Abbott also has a promising drug pipeline, including potential treatments for chronic kidney disease, hepatitis C and multiple sclerosis. These drugs are expected to reach the market by 2015.
An expanding international presence is also a component of Abbott's growth outlook. By 2016, Abbott expects the international healthcare market to account for at least 70% of its sales. In 2010, $20 billion -- nearly 60% of Abbott's total revenue -- were from international sales. Nearly a quarter of these sales were in emerging markets. In India, Abbott is already the top pharmaceutical company measured by sales.
However, an important factor impacting the planned spin-off of the firm into two separate, publicly-traded companies: a branded prescription drug company and a generic/medical device company. The separation is planned for the end of 2012.
The prescription drug company is expected to bring in at least $18 billion annually, led by sales of Humira. The second company, which will keep the Abbott name, is expected to bring in at least $22 billion annually through sales of baby formula, heart stents and generic drugs. Current holders of the stock will be future owners of in both companies for those traders interested in the intermediate time-frame.
When the spin-off was announced in late October 2011, shareholders responded positively to the news. The stock spiked several dollars on high volume before consolidating in the mid-$50 range for much of November. Over the month of December, shares increased nearly $4; the stock is now trading at a two-year high just above $56.
Forming a steep uptrend since its August 2011 $46 low, Abbott recently broke through $55 resistance -- a level unsuccessfully tested four times in the previous four months. Abbott has now bullishly completed an ascending triangle pattern, marked by resistance and the accelerated uptrend line.
There is no short-term resistance in sight, although the stock is approaching its all-time high near $58, a level hit twice in 2007 and once in 2008.
If Abbott can successfully pierce through $58, shares could surge much higher. The measuring principle -- calculated by adding the height of the triangle to the breakout level -- projects a target of $62.50 ($55-$47.50=$7.50; $7.50+$55=$62.50). At current levels this potential gain represents over 11% returns.
The bullish technical outlook is driven by strong fundamentals. In mid-October, the company reported upbeat third-quarter results.
Revenue grew 13.2% to $9.82 billion, from $8.68 billion in the year-ago period. Solid performance across all businesses segments and growth in emerging markets contributed to the gain.
For the upcoming fourth-quarter, analysts expect revenue to increase 6.4% to $10.6 billion, from $10 billion in the year-earlier period. For the full 2011 year, analysts project sales will rise 11%, with revenue reaching $39 billion, from $35.2 billion last year. By full year 2012, analysts expect revenue will increase a further 4.4% to $40.7 billion.
The earnings outlook is also solid.
In the most recent third-quarter, Abbott reported adjusted earnings (excluding special items) of $1.18 per share, reflecting 12.4% growth from $1.05 per share in the year-ago quarter.
For the upcoming fourth-quarter, analysts project earnings will increase 10% to $1.43 per share, from $1.30 in the comparable year-earlier period.
For full-year 2011, Abbott confirmed double-digit earnings growth projections. The company expects earnings to increase about 11.5% to about $4.64 to $4.66, from $4.17 last year. By full-year 2012, analysts expect earnings will ramp up a further 8.2% to $5.03 per share.
In addition to strong fundamentals, the company offers an attractive forward annual yield of about 3.4%. On December 9th, Abbott declared a quarterly dividend of $0.48 per share.
This dividend marks the 352 consecutive quarterly payout since 1924. For the past 39 years straight, Abbott has increased its dividend. Although it is uncertain what will happen to the dividend when Abbott separates into two companies at the end of 2012, traders can still benefit from strong yields in the short-term.
Risks to consider: The upcoming company split will change the face of the stock. However, until that time, traders should be able to benefit from a technically strong stock that offers attractive quarterly dividends.
Based on the analysis above, I plan to go long on Abbott.
[HE] will buy the stock at the opening of trading on Tuesday. As calculated by the measuring principle, my price target is $62.50. My stop-loss is $53.05, a historical support level, dating from April, 2011. The risk/reward ratio is approximately 2.02:1.
This is exactly what "Murphy" looks like.
He is 85 lbs + sleeps with us.
DOTD 
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