Business Report
Medtronic (MDT) is focused on manufacturing and marketing devices used in health care. The different kinds of products that are sold by the company include: cardio vascular / ear / throat / gastroenterology merchandise, surgical equipment, implants and imaging systems. The company is based out of Minneapolis, Minnesota and was incorporated in 1949. (“Medtronic,” 2012)
Abbott Labs is a health care products manufacture. They are concentrating on the distribution and sale of merchandise in a number of segments. The most notable include: pharmaceuticals, diagnosis systems / tests, stents, generic drugs and medical management software. The firm was established in 1888 and is located in Abbott Park, Illinois. (“Abbott Labs,” 2012)
Financial statement and ratio analysis on both companies.
The financial statements and ratio analysis are showing how both firms have strong fundamentals. The below table is contrasting these factors for Medtronic and Abbott Labs.
Financial Information and Ratios of Abbott Labs vs. Medtronic
Company
EPS
Revenues
Assets
Liabilities
PE Ratio
Return on Equity
Medtronic
$.83
$16.25 billion
$9.18 billion
$15.97 billion
10.83
20.60%
Abbott Labs
$1.08
$39.46 billion
$61.80 billion
$27.20 billion
12.46
19.16%
(“Abbott Labs,” 2012) (“Medtronic,” 2012) (“Medtronic 10Q,” 2012) (“Abbott Laboratories 10Q,” 2012)
This information is showing how the balance sheet of Medtronic and Abbott Labs are both strong. However, the company that is strongest is Abbott Labs. The reason why is because they are: earning more money, have higher levels of assets and lower liabilities. Moreover, the company is trading at a forward PE ratio of 12 and they are providing stockholders with a 19.46% return. This is indicating that they have stronger fundamental support. The financial ratios are illustrating how the firm is undervalued and is delivering strong earnings growth. (“Abbott Labs,” 2012) (“Medtronic,” 2012) (“Medtronic 10Q,” 2012) (“Abbott Laboratories 10Q,” 2012)
Chart that includes the trend on Medtronic’s and Abbott Labs Stock Price
When comparing the performance of the stocks, Abbott clearly has strong upward momentum. While Medtronic has been facing upward momentum that has been accompanied by volatile sell offs at select points. This has increased the volatility of the stock in contrast to Abbott. Evidence of this can be seen in the below chart that is comparing the performance of shares during the last year.
This is illustrating how Abbott Labs has stronger momentum. This is because the fundamentals are supporting increased investor confidence and solid valuations. It is at this point that the price of the stock will trade higher. From a technical analysis perspective, this has been occurring with Abbott Labs. (“Abbott Labs,” 2012) (“Medtronic,” 2012) (Weinstein, 1988)
While Medtronic has been facing, select amounts of volatility that are accompanied by upward momentum. This is because the firm does not have as strong of a balance sheet and other fundamentals. These factors have caused investors to become emotional. This has resulted in the price of the stock seeing gradual increases that are much smaller in contrast with Abbott Labs. (“Abbott Labs,” 2012) (“Medtronic,” 2012) (Weinstein, 1988)
Indicate which company you feel is the most financially stable.
The company that is the most financially stable is Abbot Labs. This is because the firm has greater EPS, revenues and assets. While the PE ratio and the return on equity is very close for both companies. Moreover, the liabilities are lower on a percentage basis for Abbott Labs. This has caused management to become more optimistic about the future.
Evidence of this can be seen with comments from Miles White (the CEO) who said, “Abbott continues to deliver strong results as we remain on track to separate into two leading health care companies. During the second quarter, we launched and advanced numerous projects in our promising, broad-based pipeline and achieved key milestones in the separation process. We are confirming our ongoing earnings-per-share guidance for the full-year 2012 of $5.00 to $5.10, reflecting another year of expected strong performance. For the full-year 2012 we are anticipating approximately $0.71 per share, primarily associated with in-process R&D, separation costs, acquisition integration and cost-reduction initiatives. Our full-year forecast of specified items has increased from our previous guidance as it now includes expected 2012 one-time separation costs related to the planned separation of Abbott into two companies. The forecast of specified items does not include bond refinancing costs related to the planned separation, which will be quantified at a later date.” This has helped to boost investor’s confidence in the stock and management’s ability to deliver on future results. The reason why is because all of the various divisions are so valuable that management has decide to spin them off. This means that anyone who purchases the company will have the chance to increase their holdings after this takes place. Over the course of time, this will result in larger percentage gains. (“Abbott Reports Strong Second Quarter Results,” 2012)
Moreover, the company also announced a quarterly dividend of $.51. This is the 354th dividend payment to investors since 1924. The combination of these factors has caused investors and Wall Street analysts to have greater amounts of confidence in Abbott Labs. A good example of this can be seen by looking no further than the total number of firms (who have the company rated as strong buy or buy and their target price in the below table). (“Abbott Labs,” 2012) (Weinstein, 1988)
Wall Street Analysts Rating Abbott Labs as a Buy or Strong Buy
Rating
Amount
Strong Buy
2
Buy
7
Target Price
$80.00
(“Abbott Labs,” 2012) (Weinstein, 1988)
These figures are showing how Wall Street is optimistic on the stock. As a result, the price will continue to move higher. (“Abbott Labs,” 2012) (Weinstein, 1988)
From a technical standpoint, the stock is trading near the all-time high of $67.45. Furthermore, the price is well above the 10 day, 50 day and 200 day moving averages. This is a bullish pattern indicating that investors are very optimistic based upon the strong fundamentals. According the Weinstein (1988), any stock that is trading above these indicators is trending higher. This means that odds are good that shares will break through the resistance level of $67.45 and continue setting new highs. When this happens, investors could receive a much greater return. (“Abbott Labs,” 2012) (Weinstein, 1988)
In comparison to Medtronic, the company is facing more challenges with increasing their earnings (although not severe) and they have greater amounts of volatility. The quarterly dividend is $.26 and the company has a history of paying it going back to 1981. From a technical vantage point, the stock is trading above the 10 day, 50 day and 200 day moving averages. All of these factors are showing how Medtronic is strong firm. However, when it is compared to Abbott Labs, it is the weaker of the two. (“Abbott Labs,” 2012) (“Medtronic,” 2012) (Weinstein, 1988)
Clearly, Abbott Labs is the best purchase of both companies. The reason why is because they have a stronger balance sheet, better fundamentals / technicals, a history of paying consistent dividends going back to 1924 and will be splitting into two firms. The combination of these factors are showing how Abbott is a stock that can provide a much better total return in contrast to Medtronic. Therefore, Abbott Labs should be purchased as it has greater potential to deliver consistent results. (“Abbott Labs,” 2012) (Weinstein, 1988)
References
Abbott Labs. (2012). Stock Charts.com. Retrieved from: http://stockcharts.com/h-sc/ui
Abbott Labs. (2012). Yahoo Finance. Retrieved from: http://finance.yahoo.com/q/pr?s=ABT+Profile
Abbott Laboratories 10Q. (2012).
Abbott Reports Strong Second Quarter Results. (2012). Abbott.com. Retrieved from: http://www.abbott.com/news-media/press-releases/abbott-reports-strong-second-quarter-results.htm
Medtronic. (2012). Stock Charts. Retrieved from: http://stockcharts.com/h-sc/ui
Medtronic. (2012). Yahoo Finance. Retrieved from: http://finance.yahoo.com/q/pr?s=MDT+Profile
Medtronic 10Q. (2012).
Weinstein, S. (1988). The Secret for Profiting in Bull and Bear Markets. New York, NY: Simon and Schuster.
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