Abbott Laboratories’ Competitive Advantage
Abbott Laboratories is a diversified health care business with multiple competitive advantages that support its different segments.
The company’s strong brand portfolio in its Nutrition segment has given it the leading worldwide market share in adult nutrition and the top market share in US pediatric nutrition.
Abbott Laboratories long history and global reach give it a unique competitive advantage that new entrants to the market cannot replicate. Abbott Laboratories has been building contacts, distribution, and expertise in health care for over 125 years. The company’s operational know-how is supplemented by its intellectual property portfolio, strong brands, and global reach and scale.
The company has had success in emerging markets because it emphasizes manufacturing in the country where goods are sold. This reduces currency fluctuation risks and builds connections with the communities, companies, and governments the company serves.
Recession Performance
Abbott Laboratories managed to grow revenue, earnings, and dividends each year through the Great Recession of 2007 to 2009.
The company’s excellent performance through such a difficult period makes the company the 3rd most recession proof Dividend Aristocrat. Click here to see the most recession proof Dividend Aristocrats.
Consumers and governments typically do not cut back on health care expenditures regardless of the economic climate. That’s how Abbott Laboratories is able to perform so well during bear markets. Abbott Laboratories stock fell just 4.95% in 2008 while the S&P 500 declined 38%.
The company’s earnings-per-share from 2007 through 2009 are shown below to give an idea of how well the company performs during recessions:
– 2007 earnings-per-share of $2.84
– 2008 earnings-per-share of $3.03
– 2009 earnings-per-share of $3.72
Future Growth Potential
Abbott Laboratories (NYSE:ABT) has invested heavily in emerging markets. These investments are paying off by providing strong double-digit growth for the company. Emerging market sales grew 21.2% on a constant-currency basis in Abbott Laboratories’ most recent quarter.
The company currently generates around 50% of sales in emerging markets. The company’s future growth is dependent on rising GDP in emerging markets. As consumers in these markets see increases in their income, the will continue to demand better health care products. Abbott Laboratories is situated to provide these health care products to consumers in emerging markets.
Abbott Laboratories’ emerging market penetration gives it excellent long-term growth prospects. The combination of emerging market economic growth and aging populations provide a favorable macroeconomic environment for Abbott Laboratories.
The combination of lower global birth rates and longer life expectancies is creating an aging global population. This is not good for generational wealth transfer systems like social security, but it is very good for health care companies. It’s no secret that the elderly spend more on health care than younger people. The more elderly there are, the better business environment for Abbott Laboratories.
The image below from the United Nation’s World Aging Report shows the massive growth in the 60+ global population through time.
Abbott Laboratories should continue to grow quickly over the next several years. If a global recession were to occur, management has plenty of ‘dry powder’ in the form of over $6 billion in cash and short-term investments sitting on its balance sheet. The company could use this cash to pursue further acquisitions in international markets if a recession were to occur.
Value Line projects earnings-per-share growth of around 10% a year over the next several years for Abbott Laboratories.
The company generated constant-currency revenue growth of 10.9% in its most recent quarter versus the same quarter a year ago. Earnings-per-share grew by 13.4% in fiscal 2014 for the company.
I believe 10% is a conservative estimate of the company’s earnings-per-share growth going forward.
