1. Abbott Laboratories NYSE: ABT
Xiaoming Luo, Muen Yue, Ni Zeng
Presented: December 05, 2017

2. Agenda Introduction Stock Market Prospect Company Overview
Industry Overview
Macroeconomic Overview
Financial Analysis
Valuation
Recommendation

3. Stock Market Performance
Key Information
Portfolio Weight by Cost
Abbott Laboratories
Fiscal Year End: December 31, 2017
Sector: Health Care
Industry: Medical Appliance & Equipment
Market Cap: $95.23Bn
Share Price: $54.71
Shares owned: 400
Stock Market Performance
*Price adjusted for AbbVie spin-off
Source: Capital IQ

4. Business Overview

5. Overview Company Introduction Globalization
Abbott Laboratories is an Illinois corporation, incorporated in Abbott's principal business is the discovery, development, manufacture, and sale of a broad and diversified line of health care products.
Strategy: Competes where it can achieve the critical mass and innovation needed to have significant impact and achieve market leadership
Focuses on four major businesses: nutrition, diagnostics, pharmaceutical, medical devices.
Globalization: 31% U.S. Sales, 69% International Sales in 2016
Featured Brands
Source: Company 2016 Annual Report; Company Website

6. Four Major Business Medical Devices Diagnostics
Cardiovascular Health
Diabetes Care
Diagnostics
Accurate Timely Information
Established Pharmaceutical
Deliver High-Quality Trusted Medicines
Nutrition
Nourishment for Every Stage of Life
Source: Company 2016 Annual Report; Company Website; Strategic Report on JP Morgan Healthcare Conference (01/10/2017)

7. 18.5% Established Pharmaceutical
Revenue Segment
13.9 % Medial Devices
• Effectively integrate Abbott and St. Jude Medical businesses
• Capture share in large established segments
• Shape and grow emerging categories
18.5% Established Pharmaceutical
• 100% focused on emerging markets
• Leading positions in India, Russia and Latin America
• Delivering strong sales growth
23.1% Diagnostics
• Leading platforms in Core
Laboratory, Point-of-Care and
Molecular diagnostics
• Plan to launch next-generation Alinity systems
33.1 % Nutrition
• Build strong globally recognized brands
• Capture share with innovation
• Uniquely balanced across products and geographies
Source: Company 2016 Annual Report; Strategic Report on JP Morgan Healthcare Conference (01/10/2017)

8. Business Highlights in 2017
Four AlinityTM systems were launched internationally for clinical chemistry, immunoassay, blood screening and point of care.
New U.S. Products
Ensite PrecisionTM cardiac mapping system, which helps physicians more effectively treat patients experiencing arrhythmias in the heart.
European Launches
Confirm RXTM
Alinity hq
Canadian Approval
FreeStyle® Libre
Submitted for FDA Approval
MRI-conditional labeling for the Quadra AssuraTM, which will allow heart failure patients to undergo full body MRI scans.
Source: Company Presentation

9. Leadership Miles D. White Chairman and Chief Executive Officer
Miles D. White is Chairman and Chief Executive Officer of Abbott. He joined Abbott in 1984, was elected to the board of directors in 1998, and became CEO and chairman of the board in He is a member of the Business Council, and was formerly Chairman of the Federal Reserve Bank of Chicago.
Miles D. White
Chairman and Chief Executive Officer
Hubert L. Allen was appointed to his current role in January Mr. Allen joined Abbott in 2006 as Senior Counsel, supporting the Pharmaceutical Products Division. He has held various positions within the legal Section Head. Prior to joining Abbott, Mr. Allen was Assistant General Counsel for McKesson Corporation.
Hubert L. Allen
Executive Vice President, General Counsel, Secretary
Brian Blaser is Executive Vice President, Diagnostics Products. He was appointed to his current position in June Prior to joining Abbott, Mr. Blaser held several positions of increasing responsibility in engineering, finance and operations at Johnson & Johnson, Eastman Kodak and General Motors.
Brian J. Blaser
Executive Vice President, Diagnostics Products
John Capek, Ph.D., is Executive Vice President, Ventures. Dr. Capek was appointed to his current position in June In this role, he leads Abbott’s venture investment organization as well as new ventures, including Abbott Electrophysiology.
John M. Capek, Ph.D.
Executive Vice President, Ventures
Robert B. Ford
Executive Vice President, Medical Devices
He was appointed to his current position in June Previously, Mr. Ford served as Senior Vice President, Diabetes Care. He joined Abbott in 1996 as a Diagnostics Business Unit Manager for Abbott Brazil. He is a member of the California Life Sciences Association Board.
Steve Fussell is Executive Vice President, Human Resources. He was promoted to this role in February Mr. Fussell joined Abbott in 1996, as Divisional Vice President, Compensation and Benefits. Prior to Abbott, he held human resources leadership positions at Nestlé and Shell..
Stephen R. Fussell
Executive Vice President, Human Resources
Source: Company Website

10. Competitive Strategy & Risk Factors
Pursue leadership in every aspect of operations
Have to be where the needs are greatest
Being present, visible, and know around the world
Optimal mix across multiple dimensions
BALANCE
PRESENCE
LEADERSHIP
RELEVANCE
Strategy
Risks
Differing local product preferences and product requirements
Trade Protection measuring and import or export licensing requirements
Restrictions on local currency
International Operation
Abbott may not complete acquisitions transactions in a timely manner, on a cost-effective basis, or at all, and may not realize the expected benefits
Acquisitions
The process of obtaining regulatory approvals to market a drug or medical device can be costly and time-consuming, and approvals might not be granted for future products
Governmental Regulations
The expiration or loss of patent protection and licenses may affect Abbott's future revenues and operating income
Patent
&
Licenses
Source: Company 2016 Annual Report; K

11. Spin-off & Major Acquisitions
2013:
Separation of AbbVie
2014:
Acquisition of CFR Pharmaceuticals and Veropharm
January, 2017: Acquisition of St Jude Medical
Feburary, 2017:
The transaction of selling Abbott Medical Optics to Johnson & Johnson totally completed
October, 2017: Acquisition of Alere Inc.
Source: Company 2016 Annual Report; Company Website

12. SWOT Analysis SWOT Analysis Strength Opportunities Weakness Threats
Leadership position in the market
Strong brand name
Diversified product lines
Steady dividend growth
Weakness
Overall sales growth rate is conservative
Research and development efforts may not succeed
Acquisition activities are time-consuming
Opportunities
Global Expansion
Merger & Acquisition
Sales Growth in the emerging markets
Threats
Intense Competition
Currency Exchange Rate
Changes in credit markets or to Abbott's credit rating
Changes in the health care regulatory environment
Source: Company website; Annual report 2016

13. Industry Overview

14. Industry Analysis: 4 Major Segments
Expected growth rate: 15.1%
Economic driver: healthcare expenditure per capita; number of adults aged 65 and
older.
Market share: 10%, #1 after acquisition of St. Jude Medical.
Expected growth rate: 2.7%
Economic driver: technological change; price of plastic materials and resin
Market share: #1 in blood testing.
Expected growth rate: 3.5%
Economic driver: number of people with private health insurance; federal funding for Medicare and Medicaid
Market share: less than 5%
Expected growth rate: 4.2%
Economic driver: healthy eating index; per capita disposable income
Market share: 13%, #1 global adult nutrition, #1 in meal replacement product manufacturing
Source: IBIS World, K

15. Porter’s Five Forces Industry Competition Highly Competitive.
Merger & Acquisition actions.
Competitive brands.
No patent protection for generic drugs.
High regulation level.
High capital investments required.
Many choice of suppliers.
In house / oversea production.
Both wholesale and retail buyers: major pharmacies/ hospitals, as well as individual buyers.
Industry Competition
Bargaining Power of Customers
Bargaining Power of Suppliers
Threat of Substitutes
Threat of New Entrants
Industry Competition
HIGH
Threat of New Entrants
LOW
Bargaining Power of Suppliers
Threat of Substitutes
Bargaining Power of Customers

16. Macroeconomic Overview

17. Number of adults aged 65 and older
Economic Drivers
Number of adults aged 65 and older
By 2050, almost one quarter of the world’s population will be over 60 years of age.
In 2014, 422 million adults have diabetes. By 2050, almost 1 in 10 people will have diabetes.
An aging population and a rise in chronic disease will increase healthcare expenditure.
Source: IBIS World, World Bank, K

18. Economic Drivers Trade-Weighted Index
Abbott’s business: 58% in developed markets, 42% in emerging markets.
Earnings are sensitive to exchange rate.
The trade-weighted index (TWI) measures the strength of the US dollar relative to the currencies of its trading partners.
Regulation Level
Health care sector is subjected to high level of regulation from both government and private trade associations.
Nutrition Industry-specific regulation is expected to increase in 2017.
Generic pharmaceutical industry is also influenced by regulation level. Increased compliance requirements place additional pressure on companies, reducing the average profit margin
Source: IBIS World, K

19. Financial Analysis

20. Operating Profit Before Tax
Financial Analysis
Sales Revenue
Operating Profit Before Tax
Source: Capital IQ

21. Financial Ratios & Dupont Analysis

22. Valuation

23. Valuation-Comparable Comps
Boston Scientific Corporation develops, manufactures, and markets medical devices for use in various interventional medical specialties worldwide. It operates through three segments: Cardiovascular, Rhythm Management, and MedSurg. The company offers interventional cardiology products. In addition, the company offers cardiac rhythm management devices.
Mkt. Cap($MM)- 36,088 Rev.($MM)- 8,386.0 EBITDA($MM)- 2,201.0 P/E x
Baxter International Inc. provides a portfolio of renal and hospital products. The company operates through two segments, Hospital Products and Renal. Hospital Products segment manufactures intravenous (IV) solutions and administration sets and also provides products and services. The Renal segment provides products to treat end-stage renal disease and products for various treatment continuums.
Mkt. Cap($MM)- 35,703 Rev.($MM)- 10,163.0 EBITDA($MM)- 1,972.0 P/E-7.3x
Danaher Corporation designs, manufactures, and markets professional, medical, industrial, and commercial products and services worldwide. The Life Sciences segment provides laser scanning, compound, and surgical and other stereo microscopes. Its Diagnostics segment provides chemistry, immunoassay, microbiology, and automation systems.
Mkt. Cap($MM)- 65,637 Rev.($MM)- 16,882.4 EBITDA($MM)- 4,115.4
P/E-30.6x
Johnson & Johnson, together with its subsidiaries, researches and develops, manufactures, and sells various products in the health care field worldwide. It operates through three segments: Consumer, Pharmaceutical, and Medical Devices.
Mkt. Cap($MM)-374,313
Rev.($MM)-71,890.0 EBITDA($MM)- 24,964.0 P/E-23.5x
Source: Yahoo Finance, Capital IQ

24. Valuation-Comparable Comps
ABT grows rapidly in 2017 with moderate efficiency. The gross margin is relatively steady.
Source: Capital IQ

25. Valuation-Comparable Comps
$ 41 - $ 43
Source: Capital IQ

26. Valuation-DCF Revenue Assumptions Source: Annual Reports 2013-2016
$, in millions
$, in millions
$, in millions
$, in millions
Source: Annual Reports

27. Discount Rate Calculation
Valuation-DCF
Revenue Assumptions
$, in millions
$, in millions
Discount Rate Calculation
DCF Result
Cost of Equity
Return Monthly
1.03%
Return Yearly
12.34%
Regression Coefficients
Beta
1.64
Risk free rate
2.50%
S&P 500 return
8.17%
CAPM
12%
WACC
10.2%
Add: Risk Premium 0%
Discount Rate
Price Calculation
Enterprise Value
$80,004
Debt
20,681
Equity Value
$59,323
Total common Shares
1,477
Share price $
Source: Annual Reports

28. Recommendation

29. Recommendation Range: $40 - $43 Current Price: $54.71 Generics
Valuation
Reasons
Recommendation
Range: $40 - $43
Current Price: $54.71
Generics
Exchange Risk
Government Regulation
Little room to improve efficiency
Sell 400 market