NEW YORK (TheStreet) --Abbott Laboratories (ABT) is the proverbial diamond in the rough. It's a healthy company that recently sold its overseas generic pharmaceuticals business to Mylan Laboratories (MYL) for $5.3 billion and then pleased investors with its second-quarter earnings report.

Still, the company's stock isn't getting the respect it deserves. Consider some of the numbers from the second-quarter earnings report Wednesday.

Its ongoing diluted earnings per share was 54 cents in the second quarter, representing year-over-year growth of 17.4%, and above the previous guidance range of 50 cents to 52 cents. Abbott raised its full-year 2014 ongoing EPS guidance to $2.19-$2.29 from $2.16- $2.26, reflecting double-digit growth at the mid-point of the range.

If that isn't impressive enough, none of the financial numbers reported reflected the $5.3 billion Mylan deal. This tax-advantaged transaction involves drugs that are mostly sold throughout Europe and other countries, and is expected to positively affectAbbott's 2015 sales and earnings-per-share growth rates as the company focuses its branded generics pharmaceuticals business on emerging markets.

My research indicates this isn't currently reflected in Abbott's share price.

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If that's not enough, during the second quarter Abbott announced agreements to acquire Latin American pharmaceutical company CFR Pharmaceuticals and Russian pharmaceutical company Veropharm. CFR Pharmaceuticals will more than double Abbott's branded generics presence in Latin America while Veropharm gives Abbott a larger footprint and manufacturing presence in Russia.

Abbott's second-quarter 2014 worldwide sales of $5.6 billion increased 3% on an operational basis, and the company is on track for sales growth acceleration in the second half of 2014. International sales, which comprise more than 70 % of total sales, increased 4.2% on an operational basis and 2.7% on a reported basis in the second quarter.

Let's look at a one-year chart of Abbott's stock.

ABT Chart
ABT
data by YCharts

At $41, shares are up over 7% for the year to date and 11.5% since April. Notice the nearly 10% year-over-year retained earnings growth in the first quarter 2014. The red line reflects the company's upward diluted EPS growth, which continued through the second quarter.

With over $7 billion in total cash at the end of the first quarter and the likelihood of that increasing in the second quarter, I'm expecting Abbott to raise its annual 88 cents dividend to over $1 per share by the end of this year. This would bring the yield up closer to competitors like Johnson & Johnson (JNJ).

Abbott's CEO Miles White said he is optimistic going into the second half of this year and the company will continue to focus on cost savings. Along with Abbott's expanding product offerings and improved sales of medical diagnostics and vascular products I give the stock a realistic 12-month price target of $46.

Investors should buy the dips before more good news arrives. The value of Abbott's medical products and burgeoning nutritional business isn't fully baked into the cake yet.

That's another reason I anticipate bargain hunters soon will see the upside potential of this iconic global health care giant. Start accumulating shares before they do!

At the time of publication the author has no positions in any company mentioned.

At the time of publication the author had no position in any of the stocks mentioned.

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TheStreet Ratings team rates ABBOTT LABORATORIES as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:

"We rate ABBOTT LABORATORIES (ABT) a HOLD. The primary factors that have impacted our rating are mixed ? some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures, expanding profit margins and notable return on equity. However, as a counter to these strengths, we also find weaknesses including deteriorating net income and weak operating cash flow."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The current debt-to-equity ratio, 0.33, is low and is below the industry average, implying that there has been successful management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.07, which illustrates the ability to avoid short-term cash problems.
  • ABBOTT LABORATORIES's earnings per share declined by 35.3% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, ABBOTT LABORATORIES increased its bottom line by earning $1.50 versus $0.36 in the prior year. This year, the market expects an improvement in earnings ($2.20 versus $1.50).
  • The gross profit margin for ABBOTT LABORATORIES is rather high; currently it is at 57.53%. Regardless of ABT's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 7.15% trails the industry average.
  • Net operating cash flow has decreased to $336.00 million or 26.99% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed against the S&P 500 and did not exceed that of the Health Care Equipment & Supplies industry. The net income has significantly decreased by 31.1% when compared to the same quarter one year ago, falling from $544.66 million to $375.00 million.

Marc Courtenay is a financial research analyst and the founder of Advanced Investor Technologies LLC as well as the publisher and editor of www.ChecktheMarkets.com.

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