ABT’s forward valuation multiple
As of March 7, 2018, Abbott Laboratories (ABT) was trading at a forward PE (price-to-earnings) ratio of 20.8x, while the stock has a PE ratio of 59x. The forward estimate is lower than the current PE ratio, which reflects the analysts’ expectations for higher company earnings over the next 12 months.
To calculate the forward PE for a company, the current stock price of the company is divided by its earnings estimates for the next 12 months. The forward PE ratio reflects the growth potential of the company over the next one year. If a stock has a high forward PE multiple, the company might be a high growth company or overvalued.
As of March 7, 2018, peers Zimmer Biomet Holdings (ZBH), Medtronic (MDT), and Boston Scientific (BSX) have forward PE ratios of 15.2x, 15.8x, and 19.5x, respectively, and forward PEG ratios of 4.4x, 2.5x, and 1.8x, respectively.
For a growth-adjusted valuation multiple, we can consider the PEG ratio. It can be used to compare companies in different industries and with different growth profiles. If a company has a lower PEG ratio than the average estimates, it’s most likely undervalued. As of March 7, 2018, Abbott Laboratories has a 12-month forward PEG (price-to-earnings-growth) ratio of 1.6x.
Over the recent period, Abbott Laboratories’ valuation multiples have improved due to the positive investor sentiments and better growth prospects of the company driven by its recent product approvals, rating updates, and strong fundamentals. For more on Abbott’s valuations in early February, see Reading into Abbott Laboratories’ Valuation.