Vitaliy’s Contrarian Edge

Abbott or GE - who is smarter?

January 19th, 2007

By Vitaliy Katsenelson, CFA

 

I am not a buyer of Abbott Labs(ABT) at this price, as the margin of safety has been depleted by the latest stock appreciation.  But I like its latest transaction with General Electric (NYSE GE). Abbott proved to be a shrewd buyer and seller.  It played Johnson & Johnson (JNJ), Guidant (GDT) and Boston Scientific (BSX) masterfully and positioned themselves to be the ”stealth” winner any way that the JNJ/Guidant or Boston Scientific/Guidant acquisition turned.   

Diagnostic segment that Abbott is selling to GE for $8.5 billion generates revenues of $2.5 billion and has a 10% EBIT margin, putting a multiple of 34 times operating profits - that’s a nice fat premium - very smart on Abbott’s part.  In GE’s defense, it could probably drive some costs out of this business once it combines it with the rest of its medical business.

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Entry Filed under: Analysis & Research