Abbott Laboratories (ABT)

Abbott is a quality diversified-health compounder, with Medical Devices (48.2% of revenue, segment margin 33.7%) as the engine — led by the FreeStyle Libre CGM ($7.6bn, +17.4% ex-FX), a secular wave, plus structural heart and electrophysiology growing at double digits. Diagnostics (Alinity installed base, with US$6.1bn of contracted remaining performance obligations; absorbed most of the COVID decline but faces challenging conditions in China), Nutrition and emerging-markets Pharmaceuticals fill out and stabilize, but dilute consolidated growth to +5.7% reported. A dividend king (54 consecutive years of increases), AA-/Aa3 rated. The pending agreement to acquire Exact Sciences (Cologuard) would add cancer screening if it closes, but would leverage the balance sheet.

A diversified-health compounder is valued by P/E on adjusted earnings — GAAP plus amortization of acquisition intangibles (St. Jude, Alere and, if it closes, Exact Sciences), which is non-economic; SBC (small for the company's size) stays expensed. FY2025 GAAP net income was $6,524M (diluted EPS $3.72 on 1,748M shares); the full reconciliation to the adjusted earnings the market uses is not confirmed in the 10-K sections read. At ~$116 the P/E on adjusted earnings is ~22× — below Abbott's historical norm (~20×) and below quality peers (Stryker/Danaher/J&J ~20-23×). The current long-term debt (~US$12.9bn, AA-/Aa3 rated) is already in earnings via interest; the additional leverage the Exact closing would bring (committed bridge facility of up to US$20,000M) is not yet reflected because the deal remains pending.

The base case projects adjusted earnings growing ~8%/year (CGM +17% + structural heart + Exact turning accretive if it closes, diluted by Nutrition/Diagnostics) at an exit multiple of 18× (a disciplined premium over pharma given the absence of a patent cliff + the secular CGM, discounted for the litigation + the potential leverage). That gives ~$136/share → a total return of +6%/year, of which the dividend (a 54-year king) is one part.

It trades close to intrinsic value, far from the required margin of safety. At ~$116 (after falling ~18% over the year) Abbott trades at ~22× on adjusted earnings — a discount to its norm and to peers, generated by the NEC litigation + the uncertainty and potential leverage from the pending Exact Sciences closing + a soft first-half organic performance. The verdict is Fairly valued: a quality franchise at a reasonable price after the drop, with a secular engine (CGM) intact, but without a wide margin because growth is modest (~6% organic) and the risks (unreserved litigation, active tax disputes, potential leverage) are real. The adverse scenario (the litigation strikes + growth slows + the multiple compresses to 15×) brings the value below the price; the favorable one (CGM accelerates + Exact accretive if it closes + the litigation resolves + a re-rating to 20.5×) is a clear upside. The asymmetry is balanced-to-favorable: the litigation's resolution (Abbott winning in the federal courts) is a free option on a quality business.

Four things. The NEC infant-formula litigation (the central disconfirmer) — no accrued reserve; Abbott won the first three federal bellwether cases via summary judgment but lost $495M in the Missouri state court (on appeal), with a second case also on appeal; a global resolution (favorable or a manageable settlement) resolves a large, unreserved risk. Organic growth — it slowed in the first half of 2026 (weakness in Nutrition and in Diagnostics in China); if it doesn't reaccelerate toward guidance, earnings growth is below 8%. The Exact Sciences closing — subject to Exact shareholder approval and regulatory clearances; whether it closes, whether Cologuard accelerates and turns accretive, or whether the new leverage (up to US$20,000M of bridge facility) weighs on the balance sheet. And CGM — the engine: whether Libre/Lingo sustain the +17% ex-FX (diabetes + expansion into wellness) or competition bites. If the litigation resolves reasonably and the organic rate reaccelerates, Abbott at this price is a quality buy; if the litigation or the tax disputes escalate, the value is lower.