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For Abbott, Diversity Remains Paramount

Twelve of 15 analysts polled by Thomson Reuters have buy ratings on Abbott. However, fans and critics alike wonder if Abbott can sustain the torrid overseas growth-rates for drugs and nutritional products when the U.S. dollar strengthens. About half of drug and nutritional-product revenue comes from foreign markets.

Because Abbott's research pipeline isn't as broad as its peers, any R&D or regulatory setback could have a disproportionate effect, says Conover.

Citigroup's Matthew Dodds advocates selling shares, complaining that Abbott has strayed from the balanced portfolio of the mid- to late-1990s and arguing that company growth forecasts appear too optimistic.

Abbott's revenue was once spread fairly evenly among drugs, nutritional products and hospital products, Dodds says in a July 16 report. But acquisitions in 2001 and 2006 plus the 2004 spinoff that formed Hospira (HSP) have changed Abbott.

"We believe an increased focus on pharmaceuticals has increased Abbott's risk profile," says Dodds, whose firm has had a recent investment banking relationship. By his count, 80% of operating profit comes from drugs.

Dodds, who doesn't own shares, says the stock could fall to $50 in 12 months. He says the current price doesn't support his 2009 earnings-per-share prediction of $3.42. The Thomson Reuters consensus is $3.66.

Based on second-quarter data, drugs account for 56% of corporate revenue and nutritional products represent 17%. Diagnostics, vascular products and other products, primarily diabetes care, are the other specialties. In early 2007, Abbott agreed to sell most of its diagnostics business to General Electric (GE), but they cancelled the deal later that year.

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