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Abbott Laboratories Up on EPD & Buyouts, Pediatric Weak

Zacks Equity Research

On Jun 14, we issued an updated research report on Illinois-based Abbott Laboratories ABT. It is a leading distributor of health care products and services across the globe. The company currently carries a Zacks Rank #2 (Buy).

For the majority of the last one month, Abbott has been trading above the broader Medical - Products industry. The stock has gained 9.0%, compared to the 4.7% gain of the broader industry. Recently, the company received CE mark for its TactiCath Sensor and Confirm Rx ICM products. The company also launched science-based nutrition drinks for faster recovery from surgeries. The company’s product diversification plan is expected to drive the share price in the near future.

Notably, Abbott’s Established Pharmaceuticals Division (EPD) operates only in emerging markets such as India, Russia and Latin America. The company recently claimed that banking on successful execution of its operating model, EPD is well positioned for sustained growth in many of these growing pharmaceutical markets. Particularly, Latin America, China and several markets in Southeast Asia have demonstrated strong growth of late. We believe, the company’s continued focus on enhancing local capabilities and expanding its product portfolio within core therapeutic areas will strengthen its position in these markets.

Overall, the company stands to benefit from the ongoing integration and synergy achievement of St. Jude Medical which was acquired at the start of 2017. The latter has a dominant position in fast-growing areas such as atrial fibrillation, heart failure, structural heart and chronic pain, which will complement Abbott's leading position in the coronary interventions and mitral valve disease markets.

There bodes well for Abbott’s investors as the enduring legal battle with its acquisition target Alere seems to be finally over. However, as expected, the financial terms of the deal have been amended in favor of Abbott. Under the altered terms, Abbott will pay $51 per common share to take over Alere, for a new expected equity value of approximately $5.3 billion, reduced from the originally expected equity value of approximately $5.8 billion. Considering the attractive prospects of Point-of-care testing within the in vitro diagnostics market, Abbott is highly optimistic about the Alere deal. According to the company, the acquisition of Alere will significantly expand its diagnostics presence and leadership in this space.

On the flip side, Abbott’s sluggish pediatric business in China continues to hamper growth. Management is also concerned about the ongoing economic problem in Venezuela that is expected to remain unresolved in the coming quarters. Foreign exchange headwind continues to plague the stock.

Other Key Picks

Other top-ranked medical stocks are Align Technology, Inc. ALGN, Inogen, Inc. INGN and Accelerate Diagnostics, Inc. AXDX. Notably, Align Technology and Inogen sport a Zacks Rank #1 (Strong Buy), while Accelerate Diagnostics carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Align Technology has an expected long-term adjusted earnings growth of almost 24.1%. The stock added roughly 30.6% over the last three months.

Inogen has a long-term expected earnings growth rate of 17.5%. The stock has a solid one-year return of around 90.2%.

Accelerate Diagnostics has an expected long-term adjusted earnings growth of 30%. The stock added roughly 14.2% over the last three months.

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