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Will Abbott's (ABT) Q2 Earnings Gain From Overall Growth?

Zacks Equity Research

Abbott Laboratories ABT is slated to report second-quarter 2019 results on Jul 17, before the market opens. In the last reported quarter, the company came up with a positive surprise of 3.28%. Abbott delivered positive surprises in three of the trailing four quarters, the average beat being 1.86%.

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

Factors at Play

Over the last few quarters, Abbott has been riding high on a healthy growth curve 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.

In the last reported quarter, sales surged at a stupendous rate (up 40% year over year), led by FreeStyle Libre. Libre is once again expected to perform exceptionally well, registering strong worldwide sales in the to-be-reported quarter. In the first quarter, Libre sales growth was 80%.

According to Abbott, FreeStyle Libre has achieved global leadership among CGM systems for both Type 1 and Type 2 users. In order to meet the spurt in demand for Libre, Abbott is currently adding a significant amount of new manufacturing capacity, which will come online, starting from the second half of 2019.

Meanwhile, on Jun 17, the company announced the launch of its Afinion HbA1c Dx assay for use on the Afinion 2 Analyzer and the Afinion AS100 Analyzer. This is the first and the only rapid point-of-care test cleared by the FDA to aid the diagnosis of diabetes and the assessment of patients' risk of developing the condition.This new development is expected to contribute to the company’s to-be-reported quarter’s top line.

Abbott Laboratories Price and EPS Surprise

Abbott Laboratories Price and EPS Surprise

Abbott Laboratories price-eps-surprise | Abbott Laboratories Quote

The Zacks Consensus Estimate of $598 million for second-quarter Diabetes Care revenues indicates a rise of 27.2% from the year-ago period’s reported figure.

Alike the prior reported quarter, Abbott in the impending quarterly release, is anticipated to gain from a solid performance by the Established Pharmaceuticals Division (EPD) business, which has been recording operational sales growth over the last few quarters. Per Abbott, its EPD business is growing at a faster pace than the market rate across the key emerging markets, which represent the most attractive long-term growth countries for branded generics portfolio. These include India, Brazil, Russia and China among others.

Management expects a mid-single-digit uptick within EPD in the second quarter comprising mid-to-high single-digit growth in the priority key emerging markets along with a modest decline in other EPD sales, which reflects the recent discontinuation of a non-core low margin third-party supply agreement.

Currently, the Zacks Consensus Estimate of $1.11 billion for EPD revenues suggests a 1.9% slip from the year-earlier period’s reported number.

We are optimistic about the consistently sturdy Diagnostics business, courtesy of robust contributions from all sub-segments, namely Core Laboratories Diagnostics, Molecular Diagnostics and Point of Care. We are impressed by the accelerated output of the company’s Alinity international sales. Currently in Europe, the company is converting its existing customers to Alinity and is winning competitive bids for new business at a very high rate.  In the United states, this business is growing more rapidly than its market rate.

Per Abbott, it is well-positioned for sustainable growth in years to come, based on the company’s rollout of the full suite of Alinity systems across additional geographies including the United States.

Within Rapid Diagnostics, the company forecasts low to mid-single digit sales growth for the second quarter.

The Zacks Consensus Estimate of $1.93 billion for Diagnostic revenues implies a 3% improvement from the figure registered in the comparable quarter last year.

We also encouragingly note that Nutrition is Abbott’s most speedily-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 thrive in the United States. For the second quarter, the company currently projects mid-single-digit sales growth.

However, the Zacks Consensus Estimate of $1.88 billion for Nutritional revenues indicates a 1.23% dip from the number registered in the prior-year quarter.

What the Model Suggests

The proven Zacks model clearly shows that a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has significant 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% in the combination makes surprise prediction difficult for the stock this reporting cycle. The Zacks Consensus Estimate for the bottom line of 80 cents suggests a 9.59% climb from the year-earlier reported figure.

Stocks Worth a Look

Here are a few medical stocks worth considering from the same space as these consist of the right mix of elements to surpass expectations this time around.

DENTSPLY SIRONA Inc. XRAY has an Earnings ESP of +6.94% and a Zacks Rank of 1. You can see the complete list of today's Zacks #1 Rank stocks here.

Thermo Fisher Scientific Inc. TMO has an Earnings ESP of +0.42% and a Zacks Rank #2.

Stryker Corporation SYK has an Earnings ESP of +0.24% and is a Zacks #2 Ranked player.

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