ABBOTT LABORATORIES (ABT) stock intrinsic value fair value estimate & owner earnings analysis

Abbott Laboratories makes medical devices, diagnostics, nutrition products and branded generic medicines, and books about 61 percent of its sales outside the United States. Medical Devices is the engine: FreeStyle Libre glucose sensors, heart rhythm and structural heart devices, electrophysiology and heart failure products. Devices grew 8.4 percent on a comparable basis in the second quarter of 2026, diabetes care 9 percent. Diagnostics now includes Exact Sciences (Cologuard), bought for about $21 billion on March 23, 2026; its cancer diagnostics sales were $919 million in the quarter, up 13 percent on a comparable basis. Nutrition (Similac, Ensure, Pedialyte) is shrinking slightly, down 3.6 percent. Established pharmaceuticals grew 8.7 percent. What changed since our analysis two weeks ago: Abbott agreed in August 2026 to pay about $670 million to settle the $495 million Gill preterm-formula verdict (affirmed on appeal in May) and claims for about 2,000 other infants, and separately agreed to pay $385 million to resolve government claims over the 2022 Sturgis, Michigan plant. About 1,700 lawsuits remain. The settlements are now counted as owed cash. We also added a medical-procedure downturn to the bear case. The bear value falls; base and bull are little changed. How we measure earnings: we start with operating cash flow, remove swings in receivables, inventory and payables, subtract stock compensation as a real cost and subtract the capital spending needed to maintain the business (not the part funding growth). Amortization of acquired intangibles ($1.7 billion in 2025, higher after Exact) is added back because it is the accounting write-down of past purchase prices, not a cash cost; the risk that acquired products fade is carried in the growth path and in the bear case instead. On this basis earnings were $3.30 a share in 2023, $3.53 in 2024 and $3.63 in 2025. We add back interest paid and remove interest earned on cash to value the business before its lenders, then subtract what it owes. The 2020-2022 COVID-testing years are left out as unrepresentative. The starting level is the middle of 2023-2025, about $6.4 billion a year ($3.67 a share). That level grew 2.6 percent in 2025, so year one is set at 2.5 percent. One item we could not fully reconcile: a $1.3 billion cash outflow into prepaid and other assets in 2025 (and $0.8 billion in 2024); we treat it as a real recurring cost, which keeps the earnings level conservative. Base case: $60.70 a share. Legacy Abbott grows 2.5 percent in year one, 3 percent for four years and 2 percent for five, then holds flat with no further growth credited. That sits below the roughly 3.8 percent a year it compounded from 2019 to 2025, supported by the Libre customer base and a device franchise that has grown through many product cycles. No credit for margin gains, Exact cost savings, new launches or market expansion. Exact Sciences earned only about $140 million in 2025 after stock pay and capital spending; we give it 3 percent growth, worth about $3 billion against roughly $21 billion paid. Business value is about $133 billion ($76 a share). Abbott owes $32.6 billion of bonds and loans; we count $4.6 billion of cash beyond operating needs, credit about $3 billion because most of the debt carries fixed coupons of 3.7 to 4.75 percent for many years, add $1.05 billion of agreed settlements and $0.65 billion of outside owners' stakes, for about $26.7 billion ($15.33 a share). A further $600 million is set aside for the remaining infant-formula suits. The difference is $60.70. Bear case: $41.82 a share. Legacy growth slows to 1 percent for five years, then stops, and earnings shrink 1 percent a year thereafter as competition from Dexcom and others erodes sensor pricing. A downturn like the 2020 shutdown, when elective procedures stopped for months, costs about $1.5 billion of cash over two years. Exact never grows and its earnings end after ten years. Remaining infant-formula suits cost $2.5 billion. Business value about $102 billion ($58.58 a share), less $15.33 of net debt and $1.43 of litigation. Debt is comfortably serviced: pre-lender cash flow of about $6.4 billion covers roughly $1.3 billion of annual interest about five times, and maturities are spread from 2026 to 2066, so refinancing is not the risk even here. Bull case: $76.54 a share. Legacy earnings grow 5 percent for five years and 3.5 percent for five (devices grew near 12 percent in 2025), Exact adds about $100 million a year for four years as it has since 2023 then grows 4 percent, and remaining litigation costs $300 million. Business value about $160 billion ($92 a share) less $15.33 of net debt. Margin of safety price: $40. We are fairly sure of the earnings level: three post-COVID years sit within a narrow $6.0-6.6 billion band and the business is spread across four segments and many countries. The worst plausible outcomes are a large adverse result in the 12,700 remaining infant-formula claims, a serious quality failure like the November 2025 Libre 3 sensor correction (linked to seven deaths) repeated at scale, or Exact proving a poor purchase; the balance sheet, rated AA-, with long fixed-rate debt and no near-term wall, would survive any of these. If we are wrong on growth and litigation together, the shares are worth roughly the low $40s. At $40 the dividend of about $2.50 a share yields roughly 6 percent over the assumed holding period, and the base case implies the base value is reached in about three years, which together approach a 20 percent annual return, while the bear case sits just above the margin-of-safety price. Above $40 the implied return depends on the base case arriving quickly, which our estimate does not assume.