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Can Balanced Segmental Growth Aid Abbott (ABT) Q3 Earnings?

Zacks Equity Research

Abbott Laboratories ABT is slated to report third-quarter 2019 results on Oct 16, before the market opens. In the last reported quarter, the company came up with a positive surprise of 2.5%. Abbott delivered positive surprises in three of the trailing four quarters, the average beat being 1.78%.

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 its flagship, sensor-based continuous glucose monitoring (CGM) system — FreeStyle Libre System. This upside is likely to reflect on the upcoming quarterly results

Notably, in the last reported quarter, Diabetes Care sales surged at a stupendous rate (up 35.3% year over year organically), led by FreeStyle Libre. Libre is once again expected to have performed exceptionally well, registering strong worldwide sales in the to-be-reported quarter.

According to Abbott, FreeStyle Libre has achieved global leadership in CGM systems for both Type 1 and Type 2 users. In order to meet higher demand for Libre, Abbott is currently adding a significant amount of new manufacturing capacity, which is gradually coming online, starting from the third quarter of 2019 onward. This might reflect on the company’s third-quarter performance throughout.

Meanwhile, in September, the company announced its newly-formed alliance with Sanofi to integrate glucose sensing and insulin delivery technologies. The two companies are developing tools that combine Abbott’s FreeStyle Libre technology with Sanofi′s insulin dosing information for future smart pens, insulin titration apps and cloud software. This new development is expected to have contributed to the company’s third-quarter top line.

The Zacks Consensus Estimate of $640 million for third-quarter Diabetes Care revenues indicates a rise of 25% from the year-ago 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 that represent the most attractive long-term growth pertaining to its branded generics portfolio. These include India, Brazil, Russia and China among others.

Abbott Laboratories Price and EPS Surprise

Abbott Laboratories Price and EPS Surprise

Abbott Laboratories price-eps-surprise | Abbott Laboratories Quote

Management expects EPD to deliver a mid-to-high-single-digit uptick in the to-be-reported results.

Currently, the Zacks Consensus Estimate of $1.22 billion for EPD revenues suggests a 5% decline from the year-earlier 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.

Moreover, we are impressed by the accelerated global rollout of the company’s Alinity suite of instrument. Currently in Europe, the company is converting its existing customers to Alinity and is progressing strongly with its systems for immunoassay and clinical chemistry testing, which is helping drive double-digit growth in international Core Laboratory business.  In the United states, this business is growing rapidly on achievement of regulatory approvals for broad menu of core laboratory tests. In this regard, in July, the company clinched an FDA approval of Alinity S for blood and plasma screening. This in turn might have also strongly contributed to the company’s third-quarter top-line performance.

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 Diagnostics, the company forecasts the legacy diagnostics businesses (comprising Core Laboratory, Molecular and Point of Care) to grow in high single digits and in Rapid Diagnostics, it forecasts low-to-mid-single-digit growth.

The Zacks Consensus Estimate of $1.92 billion for Diagnostic revenues implies a 5.3% 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 third quarter, the company projects mid-single-digit sales growth.

The Zacks Consensus Estimate of $1.89 billion for Nutritional revenues indicates a 2.9% rise from the number recorded 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 third-quarter bottom line of 84 cents suggests a 12% climb from the year-earlier reported figure.

Stocks Worth a Look

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

Akcea Therapeutics, Inc. AKCA has an Earnings ESP of +18.18% and a Zacks Rank of 2. You can see the complete list of today's Zacks #1 Rank stocks here.

Vertex Pharmaceuticals Incorporated VRTX has an Earnings ESP of +1.97% and a Zacks Rank #1.

DENTSPLY SIRONA Inc. XRAY has an Earnings ESP of +5.50% and a Zacks Rank of 3.

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