Davenport Value & Income Fund on Abbott Laboratories
Thesis
Davenport initiated Abbott Laboratories during the quarter, viewing it as a diversified healthcare franchise with a long record of dividend growth. The acquisition of Exact Sciences adds Cologuard to Abbott's diagnostics platform and provides another avenue for growth. The managers expect the combined business to sustain mid- to high-single-digit revenue growth for the foreseeable future. Margin expansion and debt reduction could translate that revenue growth into double-digit earnings growth. At purchase, Abbott traded at roughly 16 to 17 times prevailing earnings estimates, below its longer-term average, while yielding approximately 2.6 percent.
“At the time of our purchase, ABT traded at 16-17x prevailing earnings estimates, well below its longer-term average, while supplying a 2.6% dividend yield.”
Key risks
- Integration and execution risk surrounding the Exact Sciences acquisition
- Failure to achieve expected margin expansion
- Debt reduction proceeds more slowly than expected