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Abbott (ABT) Scales to a 52-Week High: What's Driving It?

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·5 min read
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Abbott Laboratories ABT scaled a new 52-week high of $130.20 on Nov 15, before closing the session marginally lower at $129.44.

The company’s shares have charted a solid trajectory in recent times, appreciating 13.9% over the past year versus the 1.3% decline of the industry it belongs to and 30.6% surge of the S&P 500 composite.

Over the past five years, the company registered earnings growth of 10.5%, which is way ahead of the industry’s 7.3% rise and the S&P 500’s 2.8% increase. The company’s long-term expected growth rate of 12% compares with the industry’s growth projection of 16.4% and the S&P 500’s projected 11.7% increase.

Abbott delivered an outstanding performance in the third quarter of 2021 with strong organic sales growth across each operating segment, barring Neuromodulation. The Diabetes Care business registered robust performance in the quarter led by its continuous glucose monitoring system, FreeStyle Libre. Greater uptake of rapid testing in Diagnostics business buoys optimism.

Zacks Investment Research
Zacks Investment Research

Image Source: Zacks Investment Research

Let’s delve deeper.

Key Drivers

Q3 Upsides: Abbott posted 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. The company registered strong growth in its more consumer-facing businesses like nutrition, established pharmaceuticals and diabetes care in the reported quarter. In Adult Nutrition, the company reported robust global demand for Ensure and Glucerna. In Pediatric Nutrition, strong growth was seen in the United States from continued share gains in infant formula and toddler portfolios. Meanwhile, within Medical Device, sales grew nearly 13%, led by double-digit growth in Rhythm Management, Structural Heart, Heart Failure and Diabetes Care.

Diagnostics Grows Amid Pandemic: The market is upbeat about Abbott’s Diagnostics business that increased more than 45% (up 12.5% excluding COVID-19 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 reported quarter, the company sold more than 225 million COVID-19 tests globally and shipped more than1 billion tests since the start of the pandemic. 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.

EPD Business Gains Momentum: Abbott’s Established Pharmaceuticals Division (EPD) business operates solely in emerging geographies, with leading positions in many of the largest and fastest-growing pharmaceutical markets for branded generics globally, including India, Russia, China and Latin America. Within EPD, growth in the third quarter was led by strong execution and a steady cadence of new product introductions. Strong sales performance in the quarter was broad-based across several countries, including double-digit growth in China, Russia and India, which led to overall sales growth of 18% in key emerging markets.

Progress With Diabetes Business: The Diabetes Care business achieved growth of 30.6% in the third quarter of 2021, led by strong growth in FreeStyle Libre and Libre Sense. FreeStyle Libre sales were nearly $1 billion in the reported quarter. Further, the company added more than 200,000 new users, reaching the total global user base for Libre to well over 3.5 million users. In a relatively short span, Libre has achieved global leadership among CGM systems for both Type 1 and Type 2 users, raising our optimism.

Downsides

Prominent Coronavirus Impact: Abbott noted modest impacts on its base business with a spike in new COVID-19 case count through the third quarter. Further, the company’s Neuromodulation arm reported an 8.3% year-over-year decline on an organic basis in the reported quarter. Abbott noted that being extremely elective, the Neuromodulation business is having a hard time in terms of post-COVID recovery.

Foreign Exchange Translation Impacts Sales: Foreign exchange is a major headwind for Abbott as a considerable percentage of its revenues come 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 international markets.

Zacks Rank and Key Picks

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

A few better-ranked stocks in the broader medical space are Chemed Corporation CHE, National Vision Holdings, Inc. EYE and West Pharmaceutical Services, Inc. WST, each carrying a Zacks Rank #2 (Buy).

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 has outperformed its industry over the past year. CHE has gained 3.1% against a 35.6% industry decline. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

National Vision has a long-term earnings growth rate of 23%. The company surpassed earnings estimates in the trailing four quarters, delivering an average surprise of 113.1%.

National Vision has outperformed the industry it belongs to in the past year. EYE has gained 14.7% versus the industry’s 1.4% decline.

West Pharmaceutical has a long-term earnings growth rate of 27.6%. The company surpassed earnings estimates in the trailing four quarters, delivering an average surprise of 29.4%.

West Pharmaceutical has outperformed the industry it belongs to in the past year. WST has gained 44.7% versus the industry’s 16.5% growth.


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