Abbott, the world's most important medical device and nutritional food supplier, how does it make money?

Table of Contents

Company profile

Abbott was founded in 1888 by Wallace C. Abbott. Abbott’s main business is pharmaceuticals (which was spun off into an independent public company AbbVie in 2013, ticker: ABBV), medical devices, and nutritional products, after several major major mergers and acquisitions. At present, the company’s departments can be divided into animal health, medical diagnosis, nutritional food, cardiovascular related, including animal anesthesia supplies and vascular related medical equipment and other major departments. It is one of the most important medical equipment and nutritional food manufacturers in the world.

The world’s largest infant formula manufacturer

Abbott’s oligopoly market

Since Abbott’s Similac and Reckitt Benckiser’s (ticker: RBGLY) Enfamil entered the market in the 1950s, few brands have been able to challenge. According to Euromonitor market research data, Abbott and Reckitt Benckiser will account for 80% of infant formula sales in the United States in 2021.

The death from Abbott’s infant formula

According to reports from Fox News and The Washington Post, the latest documents released by the U.S. Food and Drug Administration (FDA) show that from the beginning of 2021 to mid-June 2021, as many as 9 children have consumed the died after being fed factory-made infant formula at a Michigan plant. At present, the source of infection in all cases cannot be determined, but it may be suspected to be caused by Cronobacter and Salmonella.

Abbott announced the recall and discontinuation of three brands of infant formula manufactured at its Michigan plant. The announcement by the U.S. Food and Drug Administration that it has opened an investigation has also led many countries to call on consumers not to buy Abbott’s infant formula for the time being.

Infant formula is out of stock in US

According to a survey by Datasembly, in mid-May 2022, the out-of-stock rate of infant formula across the United States was about 43%. The shortage of infant formula crisis was initially caused by the supply chain obstruction and labor shortage caused by the pandemic in 2019.

But more importantly, the shutdown of the Abbott factory is also the main cause of the nationwide shortage of infant milk powder products this year. one of the reasons. According to Food & Water Watch, 95% of the formula market is controlled by three US companies. At the same time, U.S. regulations also restrict the sale of international brands of formula to the U.S. from other countries.

Business performance and valuation

Business performance

Year 2021	Division	$ million	Annual growth rate
Revenue		$43,075	+21.89%
	Established Pharmaceutical Products	4,718	+9.64%
	Nutritionals	8,294	+8.46%
	Diagnostics	15,644	+44.78%
	Medical Devices	14,367	+21.89%
Gross income		25,009	+26.61%
Gross margin		58.06%
Operating income		9,218	+62.72%
Operating margin		21.4%
Net income		7,071	+57.31%
Net margin		16.42%

Valuation

6/23/2022	Abbott
Market capitalization ($ billion)	184.619
Share price	105.44
P/E	24.48
Dividend yield	1.83%
Share performace in past 5 years (S&P 500 was＋65.13%)	+114.83%

Suitable for conservative and long-term investing

Dividend King

It is one of the most reliable companies when it comes to paying dividends. It has a 1.8% dividend yield, but more importantly, Abbott has consistently raised its dividend every year for the past 50 years (no easy feat), making it a member of the high-dividend club. Its large and diverse product catalog means its revenue base is virtually immune to sharp declines, and it’s also a steady dividend-growing company over time.

Suitable for long-term investment

Abbott’s quarterly net income has soared 764% over the past five years, and management has been looking for new growth opportunities. What’s more, it has made steady progress in reducing its debt load over time, which has only cemented its long-term appeal.

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