Abbott Laboratories (ABT) engages in the discovery, development, manufacture, an
ID: 2772361 • Letter: A
Question
Abbott Laboratories (ABT) engages in the discovery, development, manufacture, and sale of a line of health care and pharmaceutical products. Below you will find selected information from Value Line. Use the Value Line estimated 2012 figures as the actual year-end figures for the company. The beta reported was .6 and the risk-free rate was 3.21 percent. Assume a market risk premium of 6 percent.
Using the P/E, P/CF, and P/S ratios, estimate the 2013 share price for Abbott Laboratories. Use the average stock price each year to calculate the price ratios. (Do not round intermediate calculations. Round your answers to 2 decimal places. Omit the "$" sign in your response.)
Please use these formulas to calculate each ratio:
P/E: (Average P/E)(Current EPS)(1+g)
P/CF: (Average P/CF)(Current CFPS)(1+g)
P/S: (Average P/S)(Current SPS)(1+g)
Abbott Laboratories (ABT) engages in the discovery, development, manufacture, and sale of a line of health care and pharmaceutical products. Below you will find selected information from Value Line. Use the Value Line estimated 2012 figures as the actual year-end figures for the company. The beta reported was .6 and the risk-free rate was 3.21 percent. Assume a market risk premium of 6 percent.
Explanation / Answer
Answer: Average stock price: $49.60, $43.90, $40.50, $42.95, $44.050
P/E ratio: 26.38, 21.31, 18.33, 18.92, 17.62; Average P/E = 20.51
EPS growth rates: 9.57%, 7.28%, 2.71%, 10.13%; Average EPS growth = 7.43%
P/E price: 20.51(1.0743)($2.50) = $55.09
P/CF ratio: 18.72, 15.51, 13.46, 14.08, 12.96; Average P/CF = 14.94
CF growth rates: 6.79%, 6.36%, 1.33%, 11.48%, Average CF growth rate = 6.49%
P/CF price = 14.94(1.0649)($3.40) = $54.11
P/S ratios: 4.733, 3.882, 3.253, 3.439, 3.048; Average P/S = 3.671
SPS growth rates: 7.92%, 10.08%, 0.32%, 15.69%; Average SPS growth rate = 8.50%
P/S price = 3.671(1.0850)($14.45) = $57.56