Abbot Laboratories (ABT) Stock Should Start to Sizzle in 2017

Abbott Laboratories (NYSE:ABT) has evolved greatly in recent years, most notably by spinning out its proprietary pharmaceutical products division in 2013 to form a new company that is now known as AbbVie Inc (NYSE:ABBV).

Abbot Laboratories (ABT) Stock Should Start to Sizzle in 2017

Abbott then went on to make two moves to focus its generic drug business in developing markets, first by acquiring CFR Pharmaceuticals (a Latin American pharmaceutical company) for $2.9 billion in 2014 and then by selling its developed markets generics business to Mylan NV (NASDAQ:MYL) for 110 million MYL shares in 2015.

This September, Abbott also announced the sale of Abbott Medical Optics (its vision care business) to Johnson & Johnson (NYSE:JNJ) for $4.325 billion.

All of these moves add up to a steady growth, high-quality healthcare company that does not need to undertake the costs and risks of developing pharmaceuticals.

Just 18 months ago, Wall Street liked ABT enough to accumulate shares up to 20.88X anticipated earnings because the models suggested that we’d see the company grow its bottom line by 10%-12% in the near term. That expansion scenario fizzled in the summer of 2015, pushing the stock off a $50 cliff into a more subdued $35-$45 channel. As long as the year-over-year earnings trend was in decline, there just wasn’t a lot of immediate incentive to keep buying.

Months of fretting over out-of-control drug pricing and cutthroat competition in the generic pharmaceuticals space in particular didn’t help.

Now, however, ABT is barely trading at 16.4X anticipated earnings, so there’s a significant discount compared to levels we know the company can support when medical stocks are in favor. And while growth looked soft back then, there is a much healthier ramp to look forward to now: Once again, I’m looking for 10%-12% growth, and this time it’s likely that the high-profile merger with St. Jude Medical will help it happen.

Since the new and improved Abbott Laboratories came into being in 2013, reported sales have been flat, largely due to currency issues. However, excluding currency, sales actually increased 5.5% in 2014 and 7.5% in 2015. Margins expanded with the increased volume, and earnings improved from $1.62 a share in 2013 to $2.15 a share in 2015. With that in mind, I believe we could see ABT earn $2.45 a share in 2017.

Plus, the company expects EPS accretion of 19 cents in the first year after the St. Jude acquisition, so the outlook remains bright through 2018.

Value investing can be capricious because it can take years for a discounted stock to recover the pricing the fundamentals truly deserve. It helps to have a catalyst on your side — and for ABT stock, that catalyst is the emerging swing from deterioration to growth.

Coupled with the fact that the company is trading cheap in the here and now relative to its history, Abbott Laboratories could start dishing out rewards in the very near term.

Hilary Kramer is the editor of GameChangersBreakout Stocks Under $10High Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.

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