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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.

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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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