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Abbott Up 7.7% Post Q2 Earnings: Should You Buy ABT Stock?
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After several quarters of margin-related hurdles, it seems Abbott (ABT - Free Report) has finally combated this industry-wide challenge. The company’s second-quarter results reflected strong margin recovery, significantly raising investors’ optimism.
Shares of this MedTech giant have risen 7.7% since its second-quarter earnings release on Jul 18 compared with the broader industry’s 3.2% increase. The stock has also outperformed the Medical sector’s 2% rise. The S&P 500, in contrast, declined 3.8% in this period.
Abbott Outperforms Industry, Sector & S&P 500
Image Source: Zacks Investment Research
Key Takeaways From Q2 Earnings
The rally came after the company reported better-than-expected second-quarter results. While worldwide sales improved 7.4% organically, the company’s Medical Device business reported more than 12% growth during this period.
Double-digit growth in Diabetes Care, Electrophysiology, Neuromodulation and Structural Heart were the driving factors within this business. Several recently launched products and new indications contributed to the strong performance, including Amplatzer Amulet, Navitor, TriClip and AVEIR.
The company reported strong organic sales growth across other base businesses, too. Core Diagnostics, Established Pharmaceuticals and Nutrition were the other areas of growth during the second quarter.
Despite the company facing a challenging macroeconomic scenario in the form of the ongoing supply chain debacle and healthcare labor shortages, Abbott reported both gross and operating margin expansions during the second quarter. The company particularly gained from the strategic execution of its supply chain teams, lower commodity costs and favorable sales mix.
The strong growth projection for 2024 is also an indication that Abbott will be able to sustain the positive momentum through the rest of the year.
Abbott is currently trading above its 50-day and 200-day moving averages. This signals the possibility of “support” for a further uptrend.
ABT Above 50 & 200-Day SMA
Image Source: Zacks Investment Research
Long-Term Picture Bright Too
We have already discussed about the company’s Medical Device business’s exceptional sales increase in the second quarter. We note that this growth track is quite consistent, with Abbott’s pipeline generating several new growth prospects within this business. Within Diabetes Care, particularly, the company is fast gaining momentum, leveraging consistent upgrades of its flagship, sensor-based continuous glucose monitoring system, FreeStyle Libre. In the second quarter of 2024, Abbott obtained FDA approval for two new over-the-counter continuous glucose monitoring systems called Lingo and Libre Rio, which are based on Libre’s technology, which is now used by more than 6 million people around the world. This over-the-counter availability of CGM marks the initiation of a new era in the United States for Abbott.
Within Core Diagnostics too, the company is consistently gaining on a global scale. Abbott currently holds a prominent position in point-of-care testing, with a portfolio focused on four key areas — Infectious Disease, Cardiometabolic & Informatics, Toxicology and Consumer Diagnostics. As a major development within this arm, in April, the company received FDA approval for i-STAT TBI, the company’s point-of-care diagnostic test that could help determine in 15 minutes if someone has suffered a mild traumatic brain injury or concussion. The company is particularly progressing with its Alinity family of diagnostic systems, which is consistently gaining success banking on contract renewal and competitive win rates. With several recent large contract wins in its kitty, Alinity is expected to significantly contribute to Abbott’s Diagnostics business during the second half of 2024.
Within Established Pharmaceuticals Division (EPD), the company is also strategically progressing with its advancement in biosimilars. Abbott, leveraging on its leading presence in emerging markets, is enjoying a unique opportunity to scale a licensing model that is capital-efficient and can bring access to these life-changing medicines to the emerging market population. The company had already started implementing this strategy in 2023 when it agreed to commercialize several biosimilars in the areas of oncology and women’s health. The first round of commercialization is expected in 2025.
Estimate Revision Shows Upward Movement
The Zacks Consensus Estimate for 2024 earnings is pegged at $4.66 per share, indicating a 4.9% year-over-year increase. The estimate has moved 0.9% north in the past 30 days.
The consensus mark for third-quarter 2024 earnings is pegged at $1.21 per share, indicating a 5.6% year-over-year increase. The consensus mark has moved 0.8% north in the past 30 days.
Image Source: Zacks Investment Research
Stumbling Block
During the COVID-19 public health emergency, Abbott’s diagnostic tests witnessed stupendous revenue growth backed by increasing demand for testing as well as government-enacted favorable policies to expedite or promote access to healthcare in order to slow down or stop the spread of the virus. However following the official ending of the public health emergency in May 2023, Abbott is experiencing a continuous runoff in COVID testing-related sales. In Rapid Diagnostics, sales decreased 19.8% organically in the second quarter of 2024 due to lower demand for COVID-19 tests. Within Molecular Diagnostics, too, organic sales plunged 9.4% year over year.
In the upcoming months, too, the decline in testing demand is expected to mar Abbott’s overall sales growth.
Stretched Valuation
Image Source: Zacks Investment Research
From a valuation standpoint, Abbott’s forward 12-month price-to-earnings (P/E) is 21.78X, a premium to the industry average of 20.47X. The company is also trading at a significant premium to other industry players like Medtronic (MDT - Free Report) , with its current P/E being 14.67, and Becton, Dickinson and Company (BDX - Free Report) , whose current P/E is 16.6X.
Our Take: A Hold Now
Abbott’s strong market position, promising growth prospects and consistent share gains make it a compelling stock to retain in the portfolio. However, the current stretched valuation suggests that investors may be paying a higher price relative to the company's expected earnings growth. While the impressive performance in the second quarter boosted investor sentiment, this might not be the ideal time to invest in Abbott. In fact, the ongoing issues within Diagnostic testing, as well as the short-term hiccups in the form of international trade challenges, are limiting the stock’s near-term gains. Although the company has reported margin expansions, looking at the broader picture, we believe sustainability is still a matter of question.
Accordingly, while current shareholders should hold their positions, new investors should wait for a better entry point.
Image: Bigstock
Abbott Up 7.7% Post Q2 Earnings: Should You Buy ABT Stock?
After several quarters of margin-related hurdles, it seems Abbott (ABT - Free Report) has finally combated this industry-wide challenge. The company’s second-quarter results reflected strong margin recovery, significantly raising investors’ optimism.
Shares of this MedTech giant have risen 7.7% since its second-quarter earnings release on Jul 18 compared with the broader industry’s 3.2% increase. The stock has also outperformed the Medical sector’s 2% rise. The S&P 500, in contrast, declined 3.8% in this period.
Abbott Outperforms Industry, Sector & S&P 500
Image Source: Zacks Investment Research
Key Takeaways From Q2 Earnings
The rally came after the company reported better-than-expected second-quarter results. While worldwide sales improved 7.4% organically, the company’s Medical Device business reported more than 12% growth during this period.
Double-digit growth in Diabetes Care, Electrophysiology, Neuromodulation and Structural Heart were the driving factors within this business. Several recently launched products and new indications contributed to the strong performance, including Amplatzer Amulet, Navitor, TriClip and AVEIR.
The company reported strong organic sales growth across other base businesses, too. Core Diagnostics, Established Pharmaceuticals and Nutrition were the other areas of growth during the second quarter.
Despite the company facing a challenging macroeconomic scenario in the form of the ongoing supply chain debacle and healthcare labor shortages, Abbott reported both gross and operating margin expansions during the second quarter. The company particularly gained from the strategic execution of its supply chain teams, lower commodity costs and favorable sales mix.
The strong growth projection for 2024 is also an indication that Abbott will be able to sustain the positive momentum through the rest of the year.
Abbott is currently trading above its 50-day and 200-day moving averages. This signals the possibility of “support” for a further uptrend.
ABT Above 50 & 200-Day SMA
Image Source: Zacks Investment Research
Long-Term Picture Bright Too
We have already discussed about the company’s Medical Device business’s exceptional sales increase in the second quarter. We note that this growth track is quite consistent, with Abbott’s pipeline generating several new growth prospects within this business. Within Diabetes Care, particularly, the company is fast gaining momentum, leveraging consistent upgrades of its flagship, sensor-based continuous glucose monitoring system, FreeStyle Libre. In the second quarter of 2024, Abbott obtained FDA approval for two new over-the-counter continuous glucose monitoring systems called Lingo and Libre Rio, which are based on Libre’s technology, which is now used by more than 6 million people around the world. This over-the-counter availability of CGM marks the initiation of a new era in the United States for Abbott.
Within Core Diagnostics too, the company is consistently gaining on a global scale. Abbott currently holds a prominent position in point-of-care testing, with a portfolio focused on four key areas — Infectious Disease, Cardiometabolic & Informatics, Toxicology and Consumer Diagnostics. As a major development within this arm, in April, the company received FDA approval for i-STAT TBI, the company’s point-of-care diagnostic test that could help determine in 15 minutes if someone has suffered a mild traumatic brain injury or concussion. The company is particularly progressing with its Alinity family of diagnostic systems, which is consistently gaining success banking on contract renewal and competitive win rates. With several recent large contract wins in its kitty, Alinity is expected to significantly contribute to Abbott’s Diagnostics business during the second half of 2024.
Within Established Pharmaceuticals Division (EPD), the company is also strategically progressing with its advancement in biosimilars. Abbott, leveraging on its leading presence in emerging markets, is enjoying a unique opportunity to scale a licensing model that is capital-efficient and can bring access to these life-changing medicines to the emerging market population. The company had already started implementing this strategy in 2023 when it agreed to commercialize several biosimilars in the areas of oncology and women’s health. The first round of commercialization is expected in 2025.
Estimate Revision Shows Upward Movement
The Zacks Consensus Estimate for 2024 earnings is pegged at $4.66 per share, indicating a 4.9% year-over-year increase. The estimate has moved 0.9% north in the past 30 days.
The consensus mark for third-quarter 2024 earnings is pegged at $1.21 per share, indicating a 5.6% year-over-year increase. The consensus mark has moved 0.8% north in the past 30 days.
Image Source: Zacks Investment Research
Stumbling Block
During the COVID-19 public health emergency, Abbott’s diagnostic tests witnessed stupendous revenue growth backed by increasing demand for testing as well as government-enacted favorable policies to expedite or promote access to healthcare in order to slow down or stop the spread of the virus. However following the official ending of the public health emergency in May 2023, Abbott is experiencing a continuous runoff in COVID testing-related sales. In Rapid Diagnostics, sales decreased 19.8% organically in the second quarter of 2024 due to lower demand for COVID-19 tests. Within Molecular Diagnostics, too, organic sales plunged 9.4% year over year.
In the upcoming months, too, the decline in testing demand is expected to mar Abbott’s overall sales growth.
Stretched Valuation
Image Source: Zacks Investment Research
From a valuation standpoint, Abbott’s forward 12-month price-to-earnings (P/E) is 21.78X, a premium to the industry average of 20.47X. The company is also trading at a significant premium to other industry players like Medtronic (MDT - Free Report) , with its current P/E being 14.67, and Becton, Dickinson and Company (BDX - Free Report) , whose current P/E is 16.6X.
Our Take: A Hold Now
Abbott’s strong market position, promising growth prospects and consistent share gains make it a compelling stock to retain in the portfolio. However, the current stretched valuation suggests that investors may be paying a higher price relative to the company's expected earnings growth. While the impressive performance in the second quarter boosted investor sentiment, this might not be the ideal time to invest in Abbott. In fact, the ongoing issues within Diagnostic testing, as well as the short-term hiccups in the form of international trade challenges, are limiting the stock’s near-term gains. Although the company has reported margin expansions, looking at the broader picture, we believe sustainability is still a matter of question.
Accordingly, while current shareholders should hold their positions, new investors should wait for a better entry point.
Abbott currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.