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Abbott (ABT) Downgrades 2021 Outlook on Lower Testing Demand

·4 min read

Abbott Laboratories ABT recently slashed its financial outlook for 2021 due to considerably lower recent and projected COVID-19 diagnostic testing demand. Following the announcement, the stock plunged 9.8% to $105.79 to close on Jun 1.

The company expects to see reduced testing demand due to a declining number of COVID-19 cases in the United States and other developed countries, speed-up rollout of COVID-19 vaccines, and U.S. health authority guidance on testing for fully-vaccinated individuals.

Per Abbott’s management, excluding COVID-19 tests, the company’s organic base business continues to achieve strong growth, end-markets are improving and the new product pipeline continues to be highly productive.

Revised Guidance

Abbott now projects full-year adjusted earnings from continuing operations in the range of $4.30-$4.50 per share, down from the earlier projection of at least $5 per share as announced back in January and reiterated during its first-quarter 2021 earnings release in April. The Zacks Consensus Estimate for the metric is pegged at $5.05.

Abbott projects second-quarter 2021 adjusted diluted earnings per share from continuing operations to be at least $1.00. The Zacks Consensus Estimate for the metric is pegged at $1.23.

How Has Abbott Been Faring?

Abbott has been leading the global fight against COVID-19 from the front with the development of 12 tests globally. With the contributions from COVID-19 testing, the company had the additional flexibility to further invest in its strong and growing base business that continues to see accelerating growth momentum, including contributions from several recently-launched products across its portfolio.

In the first quarter, sales were strong worldwide on growing demand for COVID-19 testing-related rapid point-of-care platforms- ID NOW, BinaxNOW and Panbio. In March, Abbott’s BinaxNOW received the FDA’s emergency use authorization for over-the-counter nonprescription self-use for people with or without symptoms. Further, the company has begun shipping test kits to major retailers in April.

Zacks Investment Research
Zacks Investment Research

Progress in Other Business

During the first quarter of 2021, Abbott’s base business organic sales growth (excluding COVID-19 testing-related sales) was nearly 6%.

Abbott’s Diabetes business is progressing well with growth of 23.6% in the first quarter of 2021 banking on solid worldwide adoption of FreeStyle Libre. Within Adult Nutrition, the company reported more than 18% growth with Ensure (adult complete and balanced nutrition brand) and Glucerna (diabetes nutrition brand) reporting robust sales.

In the first quarter, within Structural Heart, MitraClip sales grew more than 15% in the United States. Within EPD, sales grew more than 6% year over year led by double-digit growth in India, China and Brazil.

Industry Prospects

Per a report by Fortune Business Insight, the global medical devices market exhibited a decline of 3.7% in 2020 as medical devices witnessed a negative adoption rate across all regions amid the pandemic.

However, considering the improved global outlook and rise in demand, the medical devices market size is expected to reach $657.9 billion by 2028 from $455.34 billion in 2021, at a CAGR of 5.4%.

Price Performance

Shares of the company have gained 21.1% in a year’s time compared with the industry’s rise of 12.7%.

Zacks Rank and Key Picks

Currently, the company carries a Zacks Rank #3 (Hold).

A few better-ranked stocks from the broader medical space are Envista Holdings Corporation NVST, Asensus Surgical, Inc. ASXC and The Cooper Companies, Inc. COO, each carrying a Zacks Rank #2 (Buy). You can see the complete list of Zacks #1 Rank (Strong Buy) stocks here.

Envista Holdings has an estimated long-term earnings growth rate of 26%.

Asensus Surgical has a projected long-term earnings growth rate of 71%.

The Cooper Companies has a projected long-term earnings growth rate of 11%.

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