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Can Abbott (ABT) Rise on Robust Overall Growth in Q2 Earnings?

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Abbott ABT is slated to report second-quarter 2018 results before the market opens on Jul 18. Last reported quarter, the company’s earnings per share exceeded the Zacks Consensus Estimate by 1.7%. Moreover, Abbott delivered positive surprises in the trailing four quarters, the average beat being 1.99%.

Let's see how things are shaping up for this announcement.

Factors at Play

Over the past few quarters, Abbott has been riding high on a healthy growth within its Diabetes Care business. The company has been hogging the limelight for developments in the flagship, sensor-based continuous glucose monitoring (CGM) system — FreeStyle Libre System. Per a recent data, the number of Libre users now has reached over 650,000 across the globe, representing an unprecedented level of patient adoption in the industry. This has firmly boosted the company’s top line numbers in the recent quarters.

This momentum should continue through the second quarter too, producing impressive results in the period. The company expects to see significant growth contributions from a line of recently launched products across the portfolio. The Zacks Consensus Estimate of $460 million for Diabetes Care revenues indicates a surge of 36.9% from the year-ago quarter.

In sync with the prior quarter, Abbott is anticipated to gain from strong performance by the Established Pharmaceuticals Division (“EPD”) business, which has been recording operational sales growth over the last few quarters. Management expects sales rise in high single-digit during the second quarter of 2018. Furthermore, the Zacks Consensus Estimate of $1.15 billion for EPD revenues shows 12.9% increase from the year-earlier period.

Abbott Laboratories Price and EPS Surprise

Abbott Laboratories Price and EPS Surprise | Abbott Laboratories Quote

We are also upbeat about the consistently sturdy Diagnostics business, courtesy of solid contributions from all sub-segments, namely Core Laboratories Diagnostics, Molecular Diagnostics and Point of Care. Moreover, synergies drawn from the Alere buyout in the form of revenues from Rapid Diagnostics, have been benefiting the company.

Additionally, management estimates Rapid Diagnostics to contribute around $2 billion in 2018. The Zacks Consensus Estimate for Core Laboratory Diagnostic revenues of $1.11 billion depicts an 8.8% gain from the comparable quarter last year.

We encouragingly note that Nutrition is Abbott’s fastest-growing business owing to aging population, increasing rate of chronic diseases and the rise of the middle class in the emerging markets. Furthermore, Abbott’s pediatric nutrition business continues to be robust in the United States. Thus, the Zacks Consensus Estimate of $1.84 billion for Nutrition revenues translates into a 6.6% improvement from the year-ago quarter’s figure.

Favorable currency translation also had a positive impact of 4.2% on the company’s top line in the first-quarter 2018. We are also optimistic about management’s expectation from foreign exchange, which appears to aid results in the to-be-reported quarter, driving revenues by 3.5% in turn.

Overall, second-quarter total revenues are projected at $7.26 billion, up 14.5% from the prior-year period.

What the Model Suggests

Per the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has good chances of beating estimates if it also has a positive Earnings ESP. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Abbott has a Zacks Rank #3, which increases the predictive power of ESP. However, its Earnings ESP of 0.00% makes surprise prediction difficult. The Zacks Consensus Estimate for earnings of 71 cents reflects 14.5% growth year over year.

Stocks Worth a Look

Here are a few medical stocks worth considering from the same space as these comprise the right combination of elements to beat on earnings this time around.

ResMed Inc. RMD has an Earnings ESP of +3.97% and is a #1 Ranked stock. You can see  the complete list of today’s Zacks #1 Rank stocks here.

Stryker Corporation SYK has an Earnings ESP of +0.13% and a Zacks Rank #2.

McKesson Corporation MCK has an Earnings ESP of +3.95% and the stock is a Zacks #3 Ranked player.

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