Abbot Laboratories (ABT)

Abbot Laboratories (ABT) engages in the deiscovery, development, manufacture, and sale of a line of health care and pharmaceutical product. (Jordan, B., Miller, T., & Dolvin, S., Pg 240)

After reading the Value Line figures and information on Abbott Laboratories in the Questions and Problems section of Chapter 6 (just before Problem 27), complete Problems 27, 28, 29, 30, and 31 and submit your work to your instructor. Show your calculations and in your response to Problem 31 write a 100- to 200-word defense of your position as to the value of Abbott Laboratories stock at its current price of $50 per share.

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a. Problem 27: What is the sustainable growth rate and required return for Abbott Laboratories? Using these values, calculate the 2010 share price of Abbott Laboratories Industries stock according to the constant dividend growth model.

b. Problem 28: Using the P/E, P/CF, and P/S ratios, estimate the 2010 share price for Abbott Laboratories. Use the average stock price each year to calculate the price ratios.

c. Problem 29: Assume the sustainable growth rate and required return you calculated in Problem 27 are valid. Use the clean surplus relationship to calculate the share price for Abbott Laboratories with the residual income model.

d. Problem 30: Use the information from the previous problem and calculate the stock price with the clean surplus dividend. Do you get the same stock price as in the previous problem? Why or why not?

e. Problem 31: Given your answers in the previous questions, do you feel Abbott Laboratories is overvalued or undervalued at its current price of around $50? At what price do you feel the stock should sell?
Reference:
Jordan, B., Miller, T., & Dolvin, S. (2012). Fundamentals of investments, valuation and management (6th ed.). New York, NY: McGraw-Hill. ISBN: 13: 9780073530710