Boston, MA 05/20/2014 (wallstreetpr) – Brokerage firm, Goldman Sachs Group Inc (NYSE:GS) has reiterated its rating on the shares of the pharmaceutical company, Abbott Laboratories (NYSE:ABT). The brokerage sees the company at vital cross-roads even as the second half of the current year is expected to witness accelerated sales and earnings per share upside.
Implications Post Separation
Goldman Sachs sees three main areas for creating value to shareholders. They are strategic activity, fundamentals, and merger and acquisition. As far as fundamentals are concerned, the investment advisor sees organic growth pace to speed up to 3.7% by the year-end from 0.5% in the first quarter of 2014.
This optimism is based on the sustained growth between 5% and 6% every year and to be fueled by the launches of new products. The brokerage also expects better revenue performance besides leveraging margin initiatives, including restructuring of general and administration, to fuel earnings per share growth in the over 10% range.
Strategic Activity
Goldman Sachs Group Inc (NYSE:GS) expects a dislocation of valuation in Abbott Laboratories’ diversified model compared to fair value of its components. Analyst David Roman’s SOTP analysis of share yields work out to $48, i.e. 23% upside besides 7% over its base case of 12-month price target.
Potential M&A
The financial flexibility of Abbott Laboratories should allow them to engage in M&A. The brokerage expects earnings per share accretion in 2015 from a possible merger and acquisition deal of $10 billion plus. The brokerage believes that the company has 0.68XNet Debt/EBITDA currently allowing them to scout for more investments externally.
Rating & Risks Factor
Goldman Sachs Group Inc (NYSE:GS) has reiterated its Buy rating on the shares of Abbott Laboratories (NYSE:ABT) and expects a potential inflection in both the stock as well as the business. The brokerage has kept a price target of $45 based on price earning ratio and DCF.
Among the risk factors, the investment advisors has listed dilutive use of cash, weak utilization, execution on initiatives to improve margin, and the growth trends in emerging markets.
