Abbott Laboratories stock has rebounded sharply in recent weeks after a tough start to the year, and both the Discounted Cash Flow (DCF) intrinsic value estimate and earnings multiple checks currently point to the shares trading at a discount to what the business may be worth.

• Year to date the share price is still down 19.7%, which means the recent rally has not fully erased earlier losses and may leave room if the current valuation gap closes.
• On the upside, expectations around higher margin MedTech and diagnostics, including cancer and Alzheimer’s testing, can support cash flow. At the same time, ongoing litigation and product pricing pressures remain a key risk to how much of that value investors are willing to pay for.
• Abbott Laboratories scores 3 out of 6 on the valuation checks, which is a mixed picture rather than a clear bargain or clear overvaluation.

The issue now is whether the current discount suggested by the intrinsic value work and multiples is enough to compensate you for the business risks around Abbott Laboratories.

Is Abbott Laboratories a Bargain on Cash Flow?

The Discounted Cash Flow (DCF) model values Abbott Laboratories by projecting the cash the business can return to shareholders over time and discounting it back to today. For Abbott Laboratories, the latest twelve month free cash flow is about $7.2b, and the model assumes that cash flows keep growing rather than shrinking, which supports a higher implied value than the current market price.

On these assumptions, the DCF points to an estimated intrinsic value of about $146 per share, compared with a current share price near $99, implying the stock screens roughly 31.9% undervalued. The recent focus on higher margin MedTech and diagnostics, including the Exact Sciences acquisition and new Alzheimer’s and cancer testing partnerships, is used in the model to support the cash flow outlook even as litigation, regulatory and pricing issues weigh on sentiment.

On balance, the Discounted Cash Flow work suggests Abbott Laboratories stock appears undervalued relative to the cash it is modeled to generate.

Our Discounted Cash Flow (DCF) analysis suggests Abbott Laboratories is undervalued by 31.9%. Track this in your watchlist or portfolio, or discover 50 more high quality undervalued stocks.

Is Abbott Laboratories Still Cheap on Earnings?

The P/E ratio is a useful yardstick for Abbott Laboratories because earnings remain a core driver of how investors assess the business today. Abbott Laboratories currently trades on a P/E of about 32.1x, compared with an average of roughly 28.9x for its direct peers and 26.9x for the broader Medical Equipment industry, so the stock is not obviously cheap on simple sector comparisons.

However, the more tailored fair P/E for Abbott Laboratories, which takes into account its size, margins, business mix and risk profile, sits higher at around 36.3x. That leaves the current multiple below this implied level, so the stock appears undervalued on earnings despite the premium to industry averages.

Overall, Abbott Laboratories appears undervalued on the P/E multiple when you compare its current ratio to the higher fair P/E suggested by the model.

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

Simply Wall St Narratives for Abbott Laboratories pick up where the valuation checks leave off by spelling out which growth, margin and earnings paths would need to play out for the stock to be worth materially more or less than today’s price. Each narrative links its numbers to a clear view on Abbott Laboratories' future growth, profitability and risks, giving you a reference point you can revisit as fresh information comes through.

Be one of the first voices in the Simply Wall St community to put a clear, number driven case on Abbott Laboratories' stock, including a view on whether its shifts toward higher margin MedTech and diagnostics and new cancer and Alzheimer’s testing partnerships deliver on the expectations currently priced in.

Share a narrative, set out your assumptions and track how your thesis holds up as Abbott Laboratories' results, legal developments and product milestones unfold.

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

For Abbott Laboratories, both the Discounted Cash Flow (DCF) intrinsic value estimate and the earnings multiple work currently lean the same way, pointing to an undervalued stock rather than an obviously expensive one. The intrinsic value estimate suggests a meaningful discount to where the shares trade today, while the tailored P/E framework also implies room for upside if assumptions hold.

The catch is that the broader valuation checks are mixed, so the discount is not a free pass. The key issue from here is whether higher margin MedTech and diagnostics can offset litigation and pricing risks enough for that gap between intrinsic value and market price to narrow.

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.