Abbott Breakup Will Create Two Moaty Companies
We believe both businesses have strong and sustainable competitive advantages.
Abbott Laboratories' (ABT) decision to break into two companies is likely to yield a health-care conglomerate with two broad components: (1) a mix of businesses with narrow and wide economic moats and (2) a wide-moat pharmaceutical company. Based on our sum-of-the-parts comparable valuation, our discounted cash flow-driven fair value estimate looks reasonable, even potentially low. We will wait to review the pro forma financial statements--likely to be released in two to three months--before we assign each piece its own moat rating. In doing so, we will focus particularly on each business' returns on capital. However, based on our initial review of Abbott's product lines and its relevant competitors, we believe both businesses have strong and sustainable competitive advantages.
While we have yet to arrive at fair value estimates for both units, we believe our fair value estimate for the whole company is supported by our assessment of sales multiples placed on some of its pure-play competitors.
Damien Conover does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.