Currently, the healthcare industry is witnessing significant growth within the clinical diagnostic market worldwide. This can be attributed to increasing adoption of point of care (POC) diagnostics, driven by ease-of-use and ability to provide instant results along with ease-of-procurement.
Per Grand View Research, the growing use of POC diagnostic products has introduced a decentralization trend in the healthcare industry. Patient and healthcare services are now decentralizing their facilities in a bid to conduct early diagnosis to utilize medical facilities remotely and reduce costs. A broad range of clinical tests enable healthcare specialists to detect disease progression. The range includes blood and urine tests ranging from simple to complex, molecular expression genetic analysis and different medical chemistry panels.
Other key growth-driving factors for this market are rising incidence of chronic diseases such as diabetes, heart failure and colon cancer; growing demand for personalized medicine covering geriatric population base; and increasing patient awareness about disease diagnosis.
Per Mordor Intelligence, the clinical diagnostic market is anticipated to witness a CAGR of nearly 5.2% over the forecast period of 2018-2023.
North America currently dominates the market, owing to rising incidence of chronic diseases, increasing occurrence of infectious diseases and higher adoption of advanced technologies.
Medical Products companies Abbott Laboratories ABT and Bio-Rad Laboratories BIO are two key players in the U.S. clinical diagnostics market.
Let us run a comparative analysis of these two stocks, both carrying a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Diagnostics is a significant part of IL-based Abbott’s business. Its product line comprises a broad range of diagnostic systems and tests manufactured, marketed and sold globally. The key products include core laboratory systems in the areas of immunoassay, clinical chemistry, hematology and transfusion; molecular diagnostics systems; POC systems such as the i-STAT, next-generation i-STAT Alinity, cartridges for blood analysis and rapid diagnostics systems.
Lion’s share of CA-based Bio-Rad Laboratories’ revenues comes from its Clinical Diagnostics business. The company develops test systems, informatics systems, test kits and specialized quality controls that serve clinical laboratories in the global diagnostics market. The product portfolio currently caters to specific niches within the in vitro diagnostics (IVD) test market, and the company seeks to focus on the higher growth segments of the same.
In the past year, Abbott’s shares have gained 38.1% compared with Bio-Rad’s 2.9% rise. The Medical Products industry has increased 8.5% during the same time frame.
This demonstrates Abbott to be the more favorable stock.
Which Way Are Estimates Headed?
The Zacks Consensus Estimate for Abbott’s current-year earnings per share stands at $3.22, implying an improvement of 11.8% from the figure reported the previous year. The same for Bio-Rad is projected at $7.15, indicating a rise of 22.4% from the prior-year reported figure.
The Zacks Consensus Estimate for Abbott’s current-year revenues is pegged at $31.93 billion, suggesting growth of 4.4% from the figure reported the previous year. The same for Bio-Rad is pegged at $2.35 billion, calling for a rise of 2.7% from the prior-year reported figure.
Clearly, Bio-Rad has a competitive advantage over Abbott in terms of current-year earnings estimates. However, Abbott has the edge when it comes to current-year sales estimates.
How Does Valuation Look?
Bio-Rad currently looks overvalued when compared with Abbott. Bio-Rad currently trades at a price-to-earnings ratio (F12M basis) of 37.87 compared with Abbott’s 24.48. Meanwhile, the industry’s ratio stands at 25.06.
Hence, Abbott wins this round.
Recent Financial Results
Bio-Rad Laboratories posted first-quarter 2019 adjusted earnings per share (EPS) of $1.65, which beat the Zacks Consensus Estimate by 47.3%. The bottom line also soared 41% from the prior-year quarter.
Revenues in the quarter totaled $554 million, beating the Zacks Consensus Estimate by 0.9%. Revenues rose 0.5% from the year-ago quarter (up 4% at constant currency). Per management, solid demand across many of its key product lines led to growth across most geographical regions.
Abbott reported first-quarter 2019 adjusted earnings from continuing operations of 63 cents per share, beating the Zacks Consensus Estimate by 3.3%. The bottom line improved 6.8% year over year and remained above the company’s guided range of 60-62 cents.
First-quarter worldwide sales came in at $7.54 billion, up 1.9% year over year on a reported basis. The top line was above the Zacks Consensus Estimate of $7.47 billion.
On an organic basis (adjusting for the impact of foreign exchange as well as certain acquisitions and divestments), sales increased 7.1% year over year in the reported quarter.
Factors Driving Growth
Within the Clinical Diagnostics segment, the company is witnessing growth in autoimmune and blood typing products. Bio-Rad has been benefiting from the solid prospects in the blood typing market. New product adoption in the United States has been impressive with the recent 510(k) clearance of the IH-Reader 24, a semi-automated blood typing instrument designed for medium- to small-volume laboratories, and the recent FDA approval of the IH500.
The integration of Alere has added Rapid Diagnostics to Abbott, which in turn has fortified its existing leadership position in the $50-billion global diagnostics market. Alere’s complementary portfolio of diagnostic products, comprising tests for infections such as HIV, tuberculosis, malaria and dengue, will drive growth for Abbott. The Diagnostics business has been witnessing strong sales growth for the past few quarters.
In this regard, the company is currently working on the timely launch of Alinity H, a hematology system. It has already attained a CE Mark for Alinity M, the highly automated molecular diagnostic system, and several infectious disease tests portfolio. Alinity, a family of highly differentiated instruments, is achieving accelerated growth and strong competitive win rates in Europe.
To Wrap it Up
Our comparative analysis indicates that Abbott is better-positioned than Bio-Rad, considering price performance and valuation. However, Bio-Rad has an edge on the basis of current-year earnings estimates.
In terms of both the companies’ growth prospects, investors are hopeful about Abbott’s progress with the Alinity portfolio and Bio-Rad’s robust segmental performance.
A couple of better-ranked stocks in the broader medical space are NuVasive NUVA and Penumbra PEN, both currently carrying a Zacks Rank #1.
NuVasive’s long-term earnings growth rate is expected to be 11.9%.
Penumbra’s long-term earnings growth rate is projected at 21.5%.
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