Assessing Abbott After 10.5% Gains and DCF PE Signals Amid Exact Sciences Deal Talk

• Wondering if Abbott Laboratories is still worth buying after its long run as a healthcare blue chip, or if most of the upside is already priced in?
• Despite a modest slip of 2.4% over the last week and being roughly flat over 30 days, the stock is still up 10.5% year to date and over the past year, hinting that long term sentiment remains constructive at around $125.40 per share.
• Recent headlines have focused on Abbott’s continued push in medical devices and diagnostics, alongside regulatory updates and product approvals that reinforce its role in areas like cardiovascular care and diabetes management. This kind of steady operational progress helps explain why the market has been willing to look through short term volatility while keeping a premium on the shares.
• On our framework, Abbott scores a 3/6 on valuation checks, as shown in our valuation scorecard. Next, we will examine what different valuation methods imply for the stock, and then finish with a more holistic way to think about its true worth.

Abbott Laboratories delivered 10.5% returns over the last year. See how this stacks up to the rest of the Medical Equipment industry.

Approach 1: Abbott Laboratories Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow model estimates what a company is worth by projecting its future cash flows and then discounting them back to today, using a required rate of return. For Abbott Laboratories, the model starts with last twelve months free cash flow of about $6.8 billion and incorporates analysts’ forecasts for the next few years, followed by more gradual, extrapolated growth thereafter.

On this basis, Abbott’s free cash flow is projected to be around $6.9 billion to $7.0 billion a year by 2035, according to the 2 Stage Free Cash Flow to Equity model. Aggregating and discounting these projected cash flows gives an estimated intrinsic value of roughly $72.88 per share.

With the stock trading near $125.40, the DCF result suggests Abbott is about 72.1% overvalued relative to its modeled cash generation. This implies investors are paying a substantial premium to the company’s projected fundamentals.

Result: OVERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Abbott Laboratories may be overvalued by 72.1%. Discover 913 undervalued stocks or create your own screener to find better value opportunities.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Abbott Laboratories.

Approach 2: Abbott Laboratories Price vs Earnings

For established, profitable companies like Abbott, the price to earnings ratio is a useful way to gauge whether investors are paying a reasonable price for each dollar of current earnings. In general, faster growing and lower risk businesses tend to justify a higher, or premium, PE ratio, while slower growth or higher uncertainty call for a discount.

Abbott currently trades at about 15.7x earnings, which is well below both the Medical Equipment industry average of roughly 28.9x and the broader peer group average of about 50.0x. At first glance, that might suggest the stock is inexpensive compared to competitors. However, Simply Wall St’s Fair Ratio framework goes a step further by estimating what PE Abbott should reasonably trade on, given its specific earnings growth outlook, profitability, size, industry dynamics and risk profile.

On this basis, Abbott’s Fair Ratio is around 25.5x, meaning the shares trade at a meaningful discount to where they would sit if priced in line with these fundamentals. This indicates that the stock appears undervalued on a PE basis, even after considering growth and risk.

Result: UNDERVALUED

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Upgrade Your Decision Making: Choose your Abbott Laboratories Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives, a simple but powerful way to connect your view of Abbott Laboratories’ future to a concrete fair value estimate. A Narrative is your story behind the numbers, where you make clear assumptions about future revenue, earnings and margins, and the platform automatically turns that story into a financial forecast and a fair value that you can compare to today’s price to decide whether to buy, hold or sell. Narratives are easy to use and live inside the Simply Wall St Community page, used by millions of investors, and they continuously update as new information, such as earnings results or deal news like the potential Exact Sciences acquisition, flows in. For example, one Abbott Narrative might assume mid single digit revenue growth, a 17.5% profit margin and a fair value near $122, while a more optimistic Narrative could lean on higher growth, stronger margins and a fair value closer to $159, neatly capturing how different investors can reasonably disagree, yet still work from a clear, structured framework.

Do you think there's more to the story for Abbott Laboratories? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.