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Here's Why You Should Retain Abbott (ABT) Stock For Now

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·5-min read
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  • ABT
  • LH
  • CHE
  • MEDP

Abbott Laboratories ABT is well poised for growth in the coming months, backed by robust organic sales growth across each of its operating segments in the third quarter of 2021. Further, the raised 2021 outlook is encouraging. However, foreign exchange headwinds and a challenging business environment are concerning.

In the past year, shares of this Zacks Rank #3 (Hold) company have gained 16.2% against the industry’s 3.4% fall. The S&P 500 rose 29.9% during the same period.

The renowned provider of a diversified line of healthcare products has a market capitalization of $221.16 billion. The company projects 12% growth for the next five years and expects to maintain strong segmental performance. Further, it surpassed estimates in three of the trailing four quarters and missed in one, delivering a surprise of 18.47%, on average.

Riding on current business growth and bullish near-term prospects, the company is worth holding on to for now.

Key Growth Drivers

Impressive Q3 Results: Abbott reported better-than-expected earnings and revenue numbers for the third quarter of 2021. Overall, year-over-year improvements were robust. Excluding COVID-19 testing-related sales, which totaled $1.9 billion in the quarter, organic sales increased 12% year over year. A major point of encouragement, even though COVID-19 case rates surged in the United States and other geographies during the third quarter, the company registered strong growth in its more consumer-facing businesses like nutrition, established pharmaceuticals and diabetes care. This mitigated the modest impacts of the pandemic that Abbott witnessed from the surge in cases in certain areas of its hospital base businesses.

Diagnostics Grows Amid Pandemic: Diagnostics sales increased more than 45% (up 12.5% excluding COVID testing-related sales) in the third quarter. With the spike in Delta variant cases, particularly in the United States, demand for testing increased significantly, most notably for rapid tests. In the third quarter, the company sold more than 225 million COVID-19 tests globally and shipped more than 1 billion tests since the pandemic's start. Over the past several months, Abbott has established a global leadership position in rapid testing, including a supply capacity of more than 100 million tests per month.

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Raised Guidance: Abbott raised its 2021 adjusted earnings per share (EPS) guidance. Full-year adjusted earnings from continuing operations (excluding specified items of $1.45 per share) are now expected in the range of $5.00- $5.10 per share (compared with the earlier band of $4.30- $4.50).

Downsides

On the flip side, some factors have been deterring the stock’s rally of late.

Foreign Exchange Translation Impacts Sales: Foreign exchange is a major headwind for Abbott due to a considerable percentage of its revenues coming from outside the United States. The strengthening of the euro and some other developed market currencies has constantly been hampering the company’s performance in the international markets.

Tension in China Continues: Abbott, though it is trying to expand its nutrition business in emerging markets, is facing weakness in Greater China on challenging market dynamics. Especially in pediatric nutrition, the company is apprehensive about the new food safety regulations and a consequent oversupply of products in the market.

Estimate Trends

Abbott is witnessing a positive estimate revision trend for the current year. In the past 90 days, the Zacks Consensus Estimate for its earnings has moved 14.3% north to $5.05.

The Zacks Consensus Estimate for 2021 revenues is pegged at $42.05 billion, suggesting 21.5% growth from the year-ago quarter’s reported number.

Key Picks

A few better-ranked stocks from the broader medical space are Chemed Corporation CHE, Laboratory Corporation of America Holdings, or LabCorp LH and Medpace Holdings, Inc. MEDP.

Chemed has a long-term earnings growth rate of 7.7%. The company surpassed earnings estimates in three of the trailing four quarters and missed in one, delivering a surprise of 5.6%, on average. Chemed currently carries a Zacks Rank #2 (Buy).

Chemed has outperformed its industry over the past year. CHE has gained 5.4% against a 40.5% industry decline.

LabCorp reported third-quarter 2021 EPS of $6.82, which surpassed the Zacks Consensus Estimate by 42.9%. Revenues of $4.06 billion outpaced the Zacks Consensus Estimate by 13.4%. LabCorp currently carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

LabCorp has an estimated long-term growth rate of 10.6%. LH surpassed estimates in the trailing four quarters, the average surprise being 25.7%.

Medpace reported third-quarter 2021 adjusted EPS of $1.29, surpassing the Zacks Consensus Estimate by 20.6%. Revenues of $295.57 million beat the Zacks Consensus Estimate by 1.2%. Medpace currently carries a Zacks Rank #1.

Medpace has an estimated long-term growth rate of 16.4%. MEDP surpassed estimates in the trailing four quarters, the average surprise being 11.9%.


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Abbott Laboratories (ABT) : Free Stock Analysis Report

Laboratory Corporation of America Holdings (LH) : Free Stock Analysis Report

Chemed Corporation (CHE) : Free Stock Analysis Report

Medpace Holdings, Inc. (MEDP) : Free Stock Analysis Report

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