GlaxoSmithKline plc (ADR) (GSK), Abbott Laboratories (ABT): Tuesday’s Top Upgrades & Downgrades

In short, the stock looks overpriced to me on first, second, and third glance, and unworthy of Deutsche’s buy recommendation.

Always end on a bright note

And finally, we come to Abbott Laboratories (NYSE:ABT), truly the highlight of today’s recommendations. RBC Capital Markets opened up the trading week with a 10% price target hike for Abbott — from $38 to $42. I think it’s justified, and I’ll tell you why.

Priced at less than 12 times earnings, net-debt-free, and paying a modest 1.5% dividend yield, Abbott Laboratories (NYSE:ABT) looks cheap relative to consensus expectations for 12% earnings growth over the next five years. Plus, Abbott Laboratories (NYSE:ABT) is more like St. Jude than it is like Glaxo in that it generates cash profits superior to what it’s allowed to report as GAAP earnings. Last year’s free cash flow haul amounted to $5.9 billion, far ahead of reported of its reported “income” of $5.3 billion. As a result, the stock’s trading for close to just 10 times free cash flow.

That valuation, on 12% growth, and with a 1.5% dividend, makes Abbott Laboratories (NYSE:ABT) looks undervalued to me.

Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

The article Tuesday’s Top Upgrades (and Downgrades) originally appeared on Fool.com and is written by Rich Smith.

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