Fang Liu

SIF New Security Valuation Report April 6, 2016

Abbott Laboratories, Inc. (NYSE: ABT)

Contents

• What Business • What Industry • Fundamental Analysis • Outside Influences • Porter’s 5 Forces Analysis • Role in Portfolio and Recommendation

What Business

• Ownership: o 47,278 shareholders (as

of 12/31/2015) o Common shares: 12.734B o 71% of Abbott’s shares are

held by institutional and mutual fund holders.

• Sector: Healthcare ( $4.23T)

• Industry: Healthcare equipment and supplies ($559.3B)

• Firm Market Cap: $60B

3

What Business

Business Summary

Business History • Incorporated in Illinois in 1900 • Present name adopted in 1915 • Went through many acquisitions and divestures • Famous brands include Similac, Pedialyte, etc.

4

What Industry

Industry • Healthcare Equipment and Supplies • Industry (+0.91%) outperformed both S&P 500 (-0.65%)

and sector (-6.95%) in 1 year. (as of 4/1/16) • 13 companies in the S&P 500 Index. Sales grew 4.6% in

2014 • 49 companies in S&P1500. Sales grew 4.8% in 2014 • High growth margin and operating margin. • Net income margin 12.4% in 2014 • Average D/E ratio 57% in 2015

Income Statement

Fiscal Year 2015 2014 2013 Contribution

Margin 57.13% 54.47% 54.05%

Profit Margin 21.68% 11.28% 11.79% Asset Turnover

Ratio 0.25 0.24 0.20

Assets/Equity 1.93 1.80 2.12 Dupont Ratio 10.35% 4.89% 4.96%

ROE 10.35% 4.89% 4.96% • Operating income and Income before tax increased in 2015. Income from non-operating source increased significantly in 2015. • Net income increased significantly due to the contribution of discontinued operation. • DuPont ratio suggests that PM drives ROE. • Revenue growth slowed down in 2015. • High contribution margin and profit margin.

Income Statement Analysis

Balance Sheet

Fiscal Year 2015 2014 2013Current ratio 1.54 1.45 2.02Debt to Equity ratio 0.28 0.16 0.13Inventory turnover ratio 3.37 3.49 3.73Depreciation/total PP&E 0.54 0.53 0.54

•  Current ratios in 2014 and 2015 are stable •  Debt to Equity ratio increased from 0.13 to 0.28 in years 2013

to 2015. •  Analysis on current assets shows increase in cash (35% in 2015

from 18% in 2013). •  Total assets analysis exhibits decrease in total current assets

and significant increase in long term investments. •  Depreciation is about half of gross PP&E (53-54%).

Balance Sheet Analysis

Statement of Cash Flows

Fiscal Year 2015 2014 2013Free Cash Flow $3,372,000 $3,473,000 $(605,000)

Free Cash Flow /Share 2.29 2.30 -0.39

Dividends per share 0.98 0.89 0.57

•  Cash flow in 2015 largely from operations. Cash flow partly from investing •  Net cash flow from investing activities positive in 2015.. •  Cash flow from financing activities in 2014 and 2015 are stable. Dividend payout

increased slightly. •  Cash flow from operations decreased in 2015.

Cash Flow Statement Analysis

Valuation- Calculation of Parameters

CAPM modelKrf 1.56%Beta 1.01

Market premium 5.53%Ke 7.15%

Growth 2015 2014 2013 2012 Averageg (Rev) 0.78% -7.33% -45.21% 2.63% -8.97% g (ROE) 6.88% 1.94% 3.00% 6.42% 4.43% g (FCF) -2.91% -674.05% -118.71% -64.98% -215.16%

D0 g D1 ke P0 0.98 4.43% 1.02 7.15% 37.67

Valuation- Calculation of Parameters Multi-stage discount model

Multi stage discount model now yr 1 yr 2 yr 3 yr 4 yr 5

g 0.78% 1.00% 2.00% 3.00% 3.00% 4.00%

Dividend 0.98 0.99 1.01 1.04 1.07 1.11

ke 7.15%          

Terminal value         35  

Present Value dividends   0.98 0.99 1.02 1.04  

Present value of terminal value

        27  

Total Present value            

Total $30.89 1 1 1 28  

Porter’s 5 Forces Analysis

Health

care   ABT

Threat of Entrants

Threat of Substitutes

S u p p l i e r Power

B u y e r Power

Threat of Entrants

Med Low

Med Low

Med Low

Low Low

Threat of Substitutes

Med Med

Med Med

Med Med

Low Med

S u p p l i e r Power

Med Low

Med Low

Med Low

Low Low

B u y e r Power

Med Low

Med Low

Med Low

Low Low

Outside Influences

Domestic market only accounts for 31% of revenue in 2015. Revenue influenced by global market, currency exchange rate, etc.

Demographic change

Least developed countries Less developed regions, excluding least developed countries More developed regions

Role In The Portfolio and Recommendation

• SIF has two securities in healthcare equipment and supplies industry, Medtronic Plc (MDT) and Stryker Corporation (SYK) in its current holding. • Comparison of stock performance of ABT, MDT, and SYK in the right graph with S&P 500.

Abbott’s stock performance (-8.54%) trails the healthcare equipment and supplies industry (2.81%), the healthcare sector (-4.61%) and the overall market (0.28%) in the past year. Its performance recently improves.

Role In The Portfolio and Recommendation

beta Dividend yield

YTD

ABT 1.01 2.0% -6.86%

SIF 0.97 1.37% 4.95%

Recommendation: Not buy. May be put in the watch list

Questions?

ABT No. 18, $5.5B, 2%