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Abbott or GE – who is smarter?

January 19, 2007

Abbott Labs, Boston Scientific Corporation, General Electric

AUTHOR:

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).

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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