There were cheers for joy when Abbott Labs announced that it would split itself into two entities — separating the device and diagnostics businesses from its pharmaceutical operation. Investors have waited a while to realize the value that this divergence would bring. However, what was once a “pre-split buzz” has now turned into a “post-split fizz,” and investors are wondering what to do about the latter. I suppose we can say, investors are now “torn.”

A tale of two halves
Now that the split, or spin-off, has taken effect, investors have become more drawn to the spun-off pharmaceutical company, AbbVie . As evident by gains of as much as 17% over the past two months, it seems AbbVie still carries the buzz. Meanwhile, this has left Abbott’s remaining diversified businesses with no real catalyst for excitement.

However, though, shares of Abbott have grown 9% since the split. And investors shouldn’t get too frustrated with the company just yet. Granted, there are still issues here that management needs to address to generate growth. That some of its prime drugs will soon go off-patent is one example. But it’s clear that management realizes the urgency of execution.

Overcoming the Street’s doubt
The company has been working for some time to streamline its operation, and there has been considerable progress. But I don’t think the Street believes that Abbott can perform to a level that deserves a higher stock price or that it can compete effectively with the likes of Johnson & Johnson . Granted, Johnson & Johnson is much bigger, more established, and you can say J&J is better diversified.

However, from the standpoint of profitability and leverage, the difference between these two rivals is not that significant. The Street assumes that Abbott can’t grow enough. I disagree. I will concede that there are risks here. But because of the recent split, some of these fears have diminished. And a more focused Abbott should yield better results. And if fourth-quarter earnings were any indication, management deserves a bit more time to execute.

These numbers were good, I think…
While I’m willing to give Abbott the benefit of the doubt here, it’s not as if management went out of its way to help with a bullish thesis, either. Though the fourth-quarter and fiscal-year numbers looked decent (as reported), it was nevertheless unclear as to how Abbott performed since management didn’t provide results that separates the “new Abbott” from AbbVie.

This only heightened the doubt that already existed about Abbott’s prospects. But management still deserves credit for producing numbers that were broadly positive when compared to other med-tech peers — in particular, Johnson & Johnson. Although fourth-quarter earnings arrived down 34.9% to $1.05 billion, or $0.66 per share, it was due to higher restructuring costs and an early debt payment of $858 million, which accounted for $0.54 per share.

When these costs are taken out, earnings actually arrived at $1.51 per share — beating Street estimates by $0.01. Likewise, revenue advanced 4.4% to $10.84 billion. This is despite an unfavorable currency rate that lowered …read more
Source: FULL ARTICLE at DailyFinance