On Mar 31, we updated our research report on medical device major, Abbott Laboratories (ABT Quick QuoteABT - Free Report) .  The stock currently carries a Zacks Rank #3 (Hold).

We are encouraged by Abbott’s initiative to realign the Established Pharmaceuticals Division (EPD) segment, which was a step in the right direction given the challenging market conditions faced by the division. The company’s EPD business operates solely in emerging geographies, with leading positions in many of the largest and fastest growing pharmaceutical markets for branded generics in the world. These markets include India, Russia and Latin America. The company recently stated that, banking on successful execution of its operating model, EPD is well positioned for sustained above-market growth in some of these growing pharmaceutical markets.

We are also looking forward to Abbott’s recently completed acquisition of St. Jude Medical, a leading player in fast-growing areas such as atrial fibrillation, heart failure, structural heart and chronic pain. The deal will complement Abbott's leading position in the coronary interventions and mitral valve disease markets.

However, over the past month, Abbott’s shares underperformed the Zacks classified Large Cap Pharmaceuticals industry on litigation qualms related to its former takeover target Alere. Almost a year after the $5.8 billion deal was inked, Abbott filed a suit to terminate the purchase of Alere. The stock lost 2.28% during this period compared with 0.34% gainfor the industry.

We are also concerned about the sluggish Nutrition business performance, especially in China and Venezuela.  

This apart, a comparative analysis of the company’s forward P/E (F12M basis) multiple reflects a relatively gloomy picture that might be a cause for investors’ concern. The stock’s valuation looks stretched when compared with its industry. Abbott currently trades at a P/E ratio of 17.65, overvalued compared with 15.72 for the broader industry. In fact, comparing the company’s current P/E level, with its own range (median of 18.0), depicts that the stock is tad overvalued in this respect as well.

Stocks to Consider

Some better-ranked stocks in the medical product industry include Inogen, Inc. (INGN Quick QuoteINGN - Free Report) , Orasure Technologies, Inc. (OSUR Quick QuoteOSUR - Free Report) and ZELTIQ Aesthetics, Inc. . While Inogen sports a Zacks Rank #1 (Strong Buy), Orasure and ZELTIQ Aesthetics carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Inogen returned 83.2% in the last one year compared with the S&P 500’s gain of 14.3%. The company posted a stellar four-quarter positive average earnings surprise of over 49.08%.

Orasure surged 76.8% in the last one year compared with the S&P 500’s gain. It reported a four-quarter positive average earnings surprise of 123.5%.

ZELTIQ Aesthetics gained over 100% in the past one year, better than the S&P 500 mark. Its trailing four-quarter average earnings surprise was a positive 12.03%.

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