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The last few years have brought big changes for
Abbott Laboratories (
ABT), the biggest being the spinoff of the firm's pharmaceutical business into
ABBV). Yanking the lucrative pharma segment out of Abbott's results provided investors with a much more distilled view of the firm's actual business and gave management a serious goal of shoring up its profitability in the very near-term. Pharma was a hugely profitable crutch for ABT, but its absence will ultimately make the firm a lot more competitive.
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The new Abbott manufactures medical devices, nutritional products, diagnostic equipment and some generic drugs. To be sure, none of those are lackluster businesses to be in, but Abbott's over-reliance on its pharmaceutical segment has shown through. On the flip side, however, Abbott is now spared from the patent cliff that held a gun to the firm's head (and stock valuation) for the last several years, which is a plus.
Abbott still has some attractive cost cutting opportunities in the near-term, as it better integrates its existing product portfolio. Powerhouse offerings such as Xience stents and high-margin nutritional brands generate plenty of free cash flow, and the firm is already much leaner after applying its spin-off proceeds to its debt load. Shorter-term, rising analyst sentiment in shares is our reason for tacking ABT to the top of our Rocket Stock list.