Abbott Labs Pipeline Strong

We believe Abbott Laboratories, Inc. (ABT - Analyst Report) will deliver double-digit EPS growth through the end of 2012, driven by strong sales of the anti-inflammatory for rheumatoid arthritis and psoriasis, Humira, and the company's rapidly growing vascular business. Several new drug applications have recently been filed with the Food and Drug Administration (FDA), which should accelerate sales in the pharmaceutical business.

We believe ABT possesses a low-risk profile and will continue to trade at an industry premium. Accordingly, we reiterate our Buy recommendation with a price target of $65.

Even, XIENCE, the company's new stent, should command significant market share thanks to the very positive SPIRIT II and III clinical trial data. This, in addition to recent stabilization in PCI procedure trends and further DES penetration, should be significant catalysts to drive the vascular business.

The acquisition of Kos Pharmaceuticals will allow Abbott to leverage the Niaspan (helps lower LDL / raise HDL cholesterol) and Simcor compounds with potential combinations with TriCor (cholesterol drug) and AstraZeneca Plc's (AZN - Analyst Report) Crestor to help drive earnings accretion in 2008 and beyond.

Finally, the divestiture of the TAP JV, sheds Prevacid, and allows Abbott to focus on higher growth businesses including its oncology and lipid platforms.

Abbott currently trades at 17.5x our 2008 EPS estimate of $3.29. While considerably more expensive than the industry average of 13.6x, we believe the premium is warranted. Abbott offers potentially the strongest combination of growth and relative risk in all of the large-cap pharma space. Abbott has some very strong business segments and a great late-stage pipeline.

Despite a few challenges ahead, including the impending influx of Depakote (for seizures) generics, we feel there's significantly more to look forward to than there is to worry about.

Jason Napodano, CFA, contributed to the report.

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