Abbott Laboratories

Abbott makes things doctors, hospitals and patients use every day. The sensor on a diabetic's arm that reads blood sugar without a finger-prick (FreeStyle Libre); the catheter that ablates a misfiring heart and the tiny pacemaker that sits inside it; the analysers in hospital laboratories and the rapid tests in pharmacies; Similac for babies and Ensure for the elderly; and branded generic medicines sold in India, Latin America and Asia. A ten-year-old's version: Abbott makes the machines, tests and foods that keep people out of hospital — or get them out faster.

It has done it for a long time. Wallace Abbott started making pills in his Chicago flat in 1888; the company has paid a dividend every quarter since 1924 and raised it for 54 consecutive years. In the quarter to June 2026 it sold $12.6bn, up 13% — but only 4.8% on a comparable basis, once the $21bn acquisition of the cancer-test maker Exact Sciences is set aside.

That gap is why the shares closed at $96.69 on 1 October 2026, 28% below their October 2025 high. In twelve months Abbott misjudged the price of baby formula and lost customers, watched its Libre sensor slow while its rival sped up, recalled three million sensors, absorbed a collapse in Chinese lab sales, borrowed $20bn for Exact, and settled over a billion dollars of litigation in four weeks. This report asks which of those things are temporary — and whether $97 is a fair price for what remains.

Two lessons for an owner. The first is that the last five years flatter nobody: a shareholder who bought in October 2021 has lost about 3% a year including dividends, because Abbott's earnings were swollen by COVID tests and then had to be rebuilt without them. Measured over ten years the record is respectable — about 12% a year — and over twenty, 10%. The second is that Abbott's best acquisitions were the ones nobody noticed (TheraSense) and its most expensive ones arrived with fanfare. Exact Sciences is in the second category; whether it joins the first is the decade's test.

Where the money is made. The shape of the profits is plain: devices and diagnostics carry the margins, nutrition is a large but lower-margin consumer business, and established pharma is a steady emerging-markets compounder. Two features matter for an owner. Libre is a razor-and-blade business — each user buys a new sensor every couple of weeks, for years — which is why its slowdown worries the market more than any other line. And the lab business is an installed base: $6.2bn of contracted future diagnostics revenue at 30 June, from analysers that sell reagents for a decade.

The 2026 arithmetic. Management guides comparable growth of 6.5–7.5% for the year. The first half delivered 4.3%. To get there, the second half must run at roughly 9–10% — helped by easier comparisons in Nutrition and China and by new products (the Volt ablation catheter, Libre's newer sensors). The third-quarter report on 21 October is the first test.

Buffett's 2007 letter asks for "an enduring 'moat' that protects excellent returns on invested capital", and warns that the criterion of "enduring" "causes us to rule out companies in industries prone to rapid and continuous change." Abbott is a portfolio of moats, and 2025–26 tested them in turn. The consumer brand turned out to have less pricing power than its owners believed; the glucose sensor met a rival that out-grew it; the heart business won share in the fastest technology shift in its field. On balance the moat is intact, and narrower in places than the share price assumed a year ago. We score it 7.

Our reading. Three of the five problems — formula pricing, China and COVID — are the kind that pass, and the evidence says they are passing: Nutrition's decline has halved twice, China has stopped falling, and COVID has nowhere left to fall. One, the sensor, is a genuine competitive fight that Abbott may or may not win; Libre is still the larger product and has new ones coming, but for two quarters its rival has been the better business. And one, Exact, is a permanent decision whose merit only time will show. Buffett's warning about expensive acquisitions in his 1981 letter fits it uncomfortably well: "If investors instead bankroll princesses who wish to pay double for the right to kiss the toad, those kisses had better pack some real dynamite. We've observed many kisses but very few miracles."

The test is dated. To meet its 2026 guidance Abbott needs comparable growth of roughly 9–10% in the second half. If the third quarter (21 October) shows the acceleration, the temporary problems were temporary. If not, the market will conclude that the base business has slowed, and the price will follow.

The pattern. Abbott's competitive position is strongest where technology moves fastest — heart rhythm, where it came late to pulsed-field ablation and still out-grew the leader — and weakest where it relied on a brand to hold prices, in formula. In glucose sensors the next two years decide whether Libre stays the low-cost leader or becomes the cheaper alternative to a better product. Unlike most of the companies on our board this month, Abbott does not face a technology that could make it unnecessary; it faces ordinary, vigorous competition in each of four businesses, which is exactly why owning all four is steadier than owning any one.

Integrity: no veto — Ford named the pricing mistake in plain words on the January call. Capital allocation: mostly sensible, with one large bet. Buying back shares at $84–90 and settling litigation are what owners would do; the Exact deal is the kind of large, debt-funded acquisition that usually disappoints, and it was made at a moment when the core business needed attention. Owner mentality: mixed signals. The chief executive bought after the crash and sold after the recovery; both trades were reasonable for him, and the second one, made a week before the shares fell 17%, is not one a shareholder can ignore. We score management and capital 6.

Two kinds of earnings. Abbott's adjusted earnings ($5.45–5.60 a share guided for 2026) leave out the amortisation of past acquisitions — St. Jude, Alere, now Exact — which runs at about $2.2bn a year and has no cash cost today. That adjustment is fair, as far as it goes: the cash was spent years ago. But it means the adjusted figure never reflects what the acquisitions cost, and the GAAP figure ($3.11 over the last twelve months) is what they cost spread out. An owner should hold both in mind, and lean on free cash flow, which is roughly midway: about $4.50 a share over the last twelve months, ~$4.10 after stock-based pay.

The verdict on the dividend: safe, and growing more slowly. At 46% of adjusted earnings and covered 1.8 times by free cash flow, it is in no danger. The direction is the thing to watch: cover fell in the post-COVID reset and has only partly recovered, and the $20bn of new debt will absorb cash that might have gone into faster raises. The comparison on our board is Johnson & Johnson, whose raise slowed to 3.1% as it kept cash for deals — Abbott's 6.8% is still twice that. And one honest footnote: the 54-year streak survives 2013 only because the AbbVie dividend counts. Abbott's own payout was reset to $0.14 a quarter that year.

What is it worth? We discounted owner earnings of about $3.80–4.10 a share at 10% for ten years. If the problems of 2025–26 prove temporary and earnings grow ~9% a year for five years and 6% thereafter, ending at 18 times, Abbott is worth about $91. If Libre keeps losing ground and Exact disappoints — 5% then 4%, 15 times — about $64. If the second-half acceleration arrives and Exact works — 11% then 7%, 20 times — about $115. At $96.69 the price sits just above our central case, with a 2.6% dividend paid while you wait.

For a business we score 7 on quality, our rules ask for a margin of safety rather than permit buying at a fair price, and there is little margin here. So: hold if you own it — the dividend is safe and the problems are mostly passing — and add near $80, about 12% under our central value and a little below the May low. A strong third quarter on 21 October would lift our estimates; a weak one would move the shares toward that price on its own.