Abbott Laboratories (ABT) engages in the discovery, development, manufacture, an
ID: 2772373 • 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 4.05 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.)
The high and low share price each year were:
Explanation / Answer
Now, in 2013,
Sales/share = 21.05
CF/share = 7.3
Earnings/share = 5.35
Now, using the average ratios calculated in the above table, price of the stock in 2013
1. Based on average P/S ratio = P/S * Sales/share = 2.43 * 21.05 = 51.19
2. Based on average P/CF ratio = P/CF * CF/share = 9.67 * 7.3 = 70.62
3. Based on average P/E ratio = P/E * Earnings/share = 13.46 * 5.35 = 72.01
Average Price of the stock in 2013 = (51.16 + 70.59 + 71.98) / 3 = 64.61
Formula 2008 2009 2010 2011 2012 Average High Given 54 69.9 61.5 69.1 57.4 Low Given 42.5 57.7 38.8 45.8 41.3 Sales/share Given 19.4 19.82 22.73 24.74 25.65 CF/share Given 4.32 5.09 5.9 6.61 6.6 Earnings per share Given 3.03 3.72 4.17 4.66 5 Average Stock price (High + Low)/2 48.25 63.8 50.15 57.45 49.35 P/S Implied 2.49 3.22 2.21 2.32 1.92 2.43 P/CF Implied 11.17 12.53 8.50 8.69 7.48 9.67 P/E Implied 15.92 17.15 12.03 12.33 9.87 13.46