1. Chris Zakhem | Mengxi (Vivian) Wang | Le Huong Hoang | Ziqi (Kay) Mai
NYSE:ABT
Chris Zakhem | Mengxi (Vivian) Wang | Le Huong Hoang | Ziqi (Kay) Mai
October 29, 2015

2. Team Introduction Chris Zakhem Vivian Wang Le Huong Hoang Ziqi Mai
Investment Manager
B.S. in Finance
Vivian Wang
Investment Manager
B.S. in Finance and Accountancy
Le Huong Hoang
Investment Manager
Masters of Finance
Ziqi Mai
Investment Manager
Masters of Finance

3. Agenda Macroeconomic Overview 4-8 Company Overview 9-18
Stock Market Overview 19
Financial Analysis
20-21
Comparable Companies
22-24
Financial Projections 25
Valuation
26-27
Recommendation 28

4. Macroeconomic Overview Population
The decreasing birthrate will potential decrease the pediatric segments but the increase in the aging population will bolster sales

5. Macroeconomic Overview Gross Domestic Product
Key indicator
2014
2015
2016
2017
2018
2019
GDP growth rate
2.4
2.5
2.6
1.4
Consumer price inflation
1.6
0.3
1.7
2.3 2
Federal Government Budget Balance (% of GDP)
-2.8
-2.7
-2.4
-2.3
-2.2
Exchange rate ¥:US
105.9
122.1
124.4
124
122
World GDP growth
2.8
2.9
World Trade Growth 3
3.7 5
5.5
5.6
The GDP growth rate in the U.S. and the world will increase until 2018 then decrease slightly in 2019

6. Macroeconomic Overview U.S. Health Spending
The U.S. health spending is expected to increase with a growth rate of 5.8%

7. Macroeconomic Overview Pharmaceutical Industry
There is an increase in pharmaceutical sales worldwide

8. Macroeconomic Overview Demand for medicine in the emerging market
There is a rising demand for medicine in the emerging markets, but the strong dollar negatively affects the international sales

9. Company Overview Segments
Products
Established Pharmaceutical Products
Key Emerging Markets
Other Emerging Market
Diagnostic Products
Immunochemistry
Nutritional Products
International Pediatric Nutritionals
U.S. Pediatric Nutritionals
International Adult Nutritionals
U.S. Adult Nutritionals
/Medical Devices
Vascular Products
Endovascular
Coronary Deices
Abbott has four main segments with multiple sub-segments within them
Abbott K, pgs. 1-4

10. Company Overview Revenue Outlook
(In Millions)
2013
2014
9M 2015
NET SALES
21,848
20,247
15,217
NET INCOME
2,383
2,284
3,656*
9 month income in 2015 includes $1,752M gain on the sale of the developed markets branded generics pharmaceuticals and animal health businesses to Mylan and Zoetis in February 2015.
Abbott K pg. 47; 2015 Q3 8-K pgs. 2-6

11. Company Overview Revenue Breakdown
Abbott K pg. 29; 2015 Q3 8-K pgs. 2-6

12. Company Overview Revenue Breakdown
50% of total sales from Emerging Market
Abbott K pg. 23

13. Company Overview Established Pharmaceutical Segment
Product
Gastroenterology products, women's health products, cardiovascular and metabolic products, pain and central nervous system products, respiratory drugs and vaccines
Market
Outside United State
Consumer
Wholesalers, distributors, government agencies, health care facilities, pharmacies, and independent retailers from Abbott-owned distribution centers and public warehouses
Challenge
Increasing competitive pressure
Strategy
Build a strong brand and expand business in the emerging market
Event
Sold its developed markets branded generics pharmaceuticals business to Mylan Inc. in February 2015.
Completed its acquisition of a controlling interest in CFR Pharmaceuticals S.A. (CFR) in September 2014.
Acquired control of Veropharm in December 2014.
Abbott K pgs. 1-4

14. Company Overview Diagnostics Segment
Product
Immunoassay and clinical chemistry systems (main product)
Market
Worldwide
Consumer
Blood banks, hospitals, commercial laboratories, clinics, physicians' offices, government agencies, alternate-care testing sites, and plasma protein therapeutic companies
Challenge
Subject to competition in technological innovation, some products in this segment can be subject to rapid product obsolescence or regulatory changes
Strategy
Improve operating margin
Event
Completed the acquisition of Topera in December 2014.
Abbott K pgs. 1-4

15. Company Overview Nutritionals Segment
Product
Various forms of prepared infant formula and follow-on formula, adult and other pediatric nutritional products, nutritional products used in enteral feeding in health care institutions
Market
Worldwide
Consumer
Institutions, wholesalers, retailers, health care facilities, government agencies, and third-party distributors from Abbott-owned distribution centers or third-party distributors.
Challenge
Subject to product obsolescence caused by regulatory change, new product introduction by competitors,
Strategy
Take advantage of an aging population and an increasing rate of chronic disease, introduce new products and improve operating margin
Event
1. A product recall initiated in August 2013 in China and two other markets for certain pediatric nutritional products supplied to Abbott by a third-party manufacturer.
Abbott K pgs. 1-4

16. Company Overview Vascular & Medical Device Segment
Product
A broad line of coronary, endovascular, vessel closure, and structural heart devices for the treatment of vascular disease
Market
Worldwide
Consumer
Hospitals & public warehouses
Challenge
Pricing pressures primarily related to drug-eluting stent (DES) franchise.
Strategy
Improve operating margin and continue to develop its worldwide market-leading DES
Event
1. Acquired 100 percent of IDEV Technologies in August 2013.
2. Acquired 100 percent of OptiMedica in August 2013.
Abbott K pgs. 1-4

17. Porter’s Five Forces Analysis
Threat of New Entrants
*Low
Threat of Substitutes
*High
Supplier Bargaining Power
*Moderate
Buyer Bargaining Power
Rivalry
Investment Team

18. SWOT Analysis
SWOT
Analysis
>Strengths - Well-established brands
- Stable Net Sales
- High operating margin
- New footprint into new markets
- Patents protected
> Weakness - No assurance of new products from R&D outcomes
- High competition
- Strong regulation by government
>Opportunities - Increasing global medical spending - Aging problems in emerging market - Products exposed to new market
>Threats - Potential lawsuits and regulation costs on pollution - Rapid product obsolescence - Downward pressure of revenue or product pricing due to government regulation
- Foreign currency exchange rate risk - Expiration or loss of patent protection - Competition
Abbott K pgs. 4-7; Investment Team

19. Stock Market Overview
There was a potential sell signal around the end of September but the stock seems to be recovering
Yahoo! Finance

20. Financial Analysis Ratios Analysis
Gross Margin
Return on Assets
Interest Coverage Ratio
2012
2013
2014
6/30/2015
2012
2013
2014
6/30/2015
2012
2013
2014
6/30/2015
Net Income Margin
Total Asset Turnover
Current Ratio
2012
6/30/2015
2013
2014
6/30/2015
2012
2013
2014
2012
2013
2014
6/30/2015
Most of Abbott’s ratios have been generally improving over time with the exception of the total asset turnover ratio
Abbott K pgs ; 2015 Q2 10-Q pgs. 3-6

21. Financial Analysis DuPont Analysis
Tax Burden
Interest Burden
Operating Margin
2012
2013
2014
6/30/2015
2012
2013
2014
6/30/2015
2012
2013
2014
6/30/2015
Asset Turnover
Leverage
Return on Equity
6/30/2015
2012
2013
2014
2013
2014
6/30/2015
2012
2012
2013
2014
6/30/2015
Abbott’s return on equity has been improving since its spin-off of Abbvie at the beginning of 2013
Abbott K pgs ; 2015 Q2 10-Q pgs. 3-6

22. Comparable Companies Descriptions
Thermo Fisher Scientific, Inc.
Provides analytics instruments, equipment, reagents and consumables, software, and services for research, manufacturing, analysis, discovery, and diagnostics worldwide
Groups include Life Sciences, Analytical Instruments, and Specialty Diagnostics
Medtronic plc
Sells device based medical therapies worldwide
Groups involve Vascular, Minimal Invasive Therapy, and Restorative Therapy
St. Jude Medical Inc.
Manufactures and distributes cardiovascular medical devices for cardiac rhythm management, cardiovascular, and atrial fibrillation therapy areas worldwide
Groups include Implantable Electronic Systems and Cardiovascular and Ablation Technologies.
Stryker Corporation
Operates as a medical technology company
Groups include Orthopaedics, Medical Surgery, and Neurotechnology and Spine
Boston Scientific Corporation
Develops, manufactures, and markets medical devices for use in various interventional medical specialties worldwide
Groups include Cardiovascular, Rhythm Management, and Medical Surgery
These comparable companies were narrowed down by business description and industry and are competitors with Abbott
Capital IQ

23. Comparable Companies Analysis
Median multiples were chosen and were equally weighted to come a valuation of $46.20 per share
Capital IQ

24. Weighted Average Cost of Capital
Cost of Debt
Cost of Equity
WACC
The weighted average cost of capital was calculated to be 8.86% but a risk premium was added to round the WACC to 9.00%
Abbott K pg. 68; 2015 Q2 10-Q pg. 24; Federal Reserve; Ibbotson's SBBI

25. Financial Projection
30%: On 12/12/14, ABT acquired Veropharm, a leading Russian pharm; huge growth in Russian market.
11%:Excluding foreign exchange effect, we expect the sales to growth by roughly 15% for future years; the forex impact will be -8% for 2015, but we assume ABT will hedge against it by half.
39.41%:On 9/26/14, ABT acquired CFR, more than doubles presence in Latin America; then grows steady at a lower rate than key emerging market.
4%: In 2013 and 2014, there was a product recall in China; consumer confidence has been restored by the end of 2014.
We expected the long-term growth rate is 3% each year considering declining global GDP after 2019.
Investment Team

26. Discounted Cash Flow
In 2014 and 2015, ABT aims to streamline operation and increase margin, the margin growth is forecasted to be 3% mainly driven by nutrition and diagnostic business.
In February 2015, ABT sold its developed market Established pharmaceutical business to Mylan, lowering tax rate.
Investment Team

27. Valuation
Using a 30% weight on comparable companies and a 70% weight on the DCF, our valuation came out to be $44.95
Investment Team

28. Final Recommendation We recommend to hold 400 shares of ABT
Stock price is moving above the 20-day moving average
The 2015 third quarter earnings beat analysts’ expectation
We value ABT stock to be fairly priced at $44.76 (as of 10/28/15)
Current Price
# of Share
Market
Value
Cost
Gain &
%Gain
$44.76
100 Shares
$4,476
$3,155
$1, %
200 Shares
$8,952
$4,994
$3,985
+79.26%
$2,538
$1,938
+76.36%