Abbott Laboratories stock has declined 13.3% over the past year, yet the current valuation checks send a mixed message, because the Discounted Cash Flow (DCF) intrinsic value estimate points to meaningful upside while market based multiples suggest the share price is roughly in line with peers.

• Over the last 12 months the share price is down 13.3%, which invites a closer look at whether recent weakness already reflects the key risks in Abbott Laboratories.
• Recent product momentum around its glucose sensor partnerships can support expectations for future cash flows, while any setback in adoption of these biowearables may limit how much value investors are willing to assign to those growth options.
• The company scores 3 out of 6 on our broader valuation checks, which points to a mixed picture rather than a clear bargain or clear overvaluation for Abbott Laboratories on metrics beyond the intrinsic value estimate and headline multiples.

The stock's next move may depend on whether the current price already captures the value implied by the DCF estimate or still leaves a margin between market price and intrinsic value.

Is Abbott Laboratories a Bargain on Cash Flow?

The Discounted Cash Flow (DCF) model here projects the cash that Abbott Laboratories may generate for shareholders and then discounts it back to today. On this view, Abbott Laboratories produced about $7.6b of free cash flow over the latest twelve months, and analysts expect those cash flows to grow over time rather than shrink. Rolling those projections forward using a 2 Stage Free Cash Flow to Equity approach leads to an estimated intrinsic value of about $150.62 per share.

Compared with the recent share price, that intrinsic value implies the stock screens at around 26.7% undervalued. The new MiniMed Flex system shipping in the US with an Abbott sensor helps explain why the market is prepared to credit future cash flows from diabetes technology, yet the DCF output still sits comfortably above where the stock trades today.

On this cash flow view, Abbott Laboratories stock currently looks undervalued.

Our Discounted Cash Flow (DCF) analysis suggests Abbott Laboratories is undervalued by 26.7%. Track this in your watchlist or portfolio, or discover 53 more high quality undervalued stocks.

Does Abbott Laboratories Look Fairly Valued on Earnings?

The P/E ratio is a useful yardstick for Abbott Laboratories because earnings are a key focus for many investors in established healthcare companies. Abbott Laboratories currently trades on a P/E of about 35.4x. That is above the Medical Equipment industry average of roughly 26.0x and also above the peer group average of around 30.6x.

A tailored fair P/E ratio for Abbott Laboratories of about 36.9x suggests that this richer multiple is broadly in line with what might be expected once factors such as scale, profitability profile and risk are taken into account. The gap between the current 35.4x and the 36.9x fair ratio is small, so the stock does not screen as clearly cheap or clearly expensive on earnings alone.

On the P/E multiple, Abbott Laboratories looks priced at roughly fair value compared with what the model suggests for its earnings profile.

The Abbott Laboratories Narrative: What Would Justify Today's Price?

Simply Wall St Narratives aim to bridge the gap between Abbott Laboratories' mixed valuation signals and the assumptions that would need to hold on growth, margins and earnings for the stock to be worth materially more or materially less than today’s price. These narratives sit on Simply Wall St's Community page, and each one treats Abbott Laboratories' fair value as a thesis about the business that can be tracked over time rather than a static snapshot.

You can add your voice to the Simply Wall St community by sharing a data backed Narrative on Abbott Laboratories' stock and your view on whether developments like the MiniMed Flex system and the Lingo partnership with Google Health support today's valuation. Set out your numbers, publish your thesis and see how it holds up as new results and product updates come through.

Do you think there's more to the story for Abbott Laboratories? Head over to our Community to see what others are saying!

The Bottom Line

Abbott Laboratories screens as undervalued on the Discounted Cash Flow (DCF) intrinsic value estimate, while its P/E multiple looks roughly in line with peers once size and earnings profile are considered. That split reflects a market that is willing to pay for current profitability, yet still discounts some of the longer term cash flow potential implied by the intrinsic value model. The broader checks point to a mixed valuation rather than a clear outlier. The key question from here is whether Abbott Laboratories can turn its biowearables and glucose sensor partnerships into durable cash flows that justify both the intrinsic value upside and the current earnings multiple.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.