After Nearly A 20% Rise In Six Months Will Abbott Stock See Higher Levels Post Q1?

Abbott (NYSE: ABT) will report its Q1 2024 results on Wednesday, April 17. We expect the company to post revenue of $9.9 billion and earnings of $0.95 on a per share and adjusted basis, aligning with the street expectations. We expect a low double-digit uptick in sales for the company, amid a robust recovery in global procedure volume. Although we expect Abbott to post in-line results in Q1, we believe there is some room for its stock to grow from its current levels of under $110. Our interactive dashboard analysis of Abbott’s Earnings Preview has more details on how the company’s revenues and earnings will likely trend for the quarter. So, what are some of the trends that are likely to drive Abbott’s results?

Firstly, let us look at ABT stock performance in recent years. ABT stock has seen little change, moving slightly from levels of $110 in early January 2021 to around $109 now, vs. an increase of about 35% for the S&P 500 over this roughly three-year period. Overall, the performance of ABT stock with respect to the index has been lackluster. Returns for the stock were 29% in 2021, -22% in 2022, and 0% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 — indicating that ABT underperformed the S&P in 2022 and 2023.

In fact, consistently beating the S&P 500 — in good times and bad — has been difficult over recent years for individual stocks; for heavyweights in the Health Care sector including LLY, UNH, and JNJ, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.

Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could ABT face a similar situation as it did in 2022 and 2023 and underperform the S&P over the next 12 months — or will it see a strong jump? From a valuation perspective, we think ABT stock has some room for growth. We estimate Abbott’s Valuation to be around $127 per share, about 15% above the current market price of $109. At its current levels of $109, ABT stock is trading at 24x forward expected earnings of $4.60 per share in 2024. Abbott has guided for earnings to be in the range of $4.50 and $4.70 per share. Although the 24x figure aligns with the stock’s average P/E over the last five years, we think an upward revision in P/E for Abbott makes sense. The major decline in sales from falling demand for Covid-19 testing is now behind us, and there is a strong recovery in global procedure volume, which will likely help Abbott see better than expected earnings growth.

Coming to the current quarter, Abbott should see growth across its segments. While the Nutrition segment should benefit from market share gains for its baby formula products, medical devices will see higher sales from a rise in procedure volume. Abbott’s FreeStyle Libre will likely continue to see growth in the number of users, bolstering the company’s diabetes sales. Abbott recorded COVID-19 testing sales of $730 million in Q1’23 and this figure will be much lower in Q1’24, slightly offsetting the growth from core laboratory diagnostics.

Looking at the previous quarter, Abbott’s revenue of $10.2 billion in Q4 was up 1.5% y-o-y. The company reported a 17.5% jump in Medical Device segment sales, Nutrition was up 12.2%, and Established Pharmaceuticals saw a 0.5% rise in revenue. Growth in these segments more than offset a 22.7% fall in Diagnostics revenues due to lower demand for COVID-19 testing. Excluding the Covid-19 tests, the Diagnostics sales were up 1.7%. The company saw its adjusted gross margin remain stable at around 56%. This clubbed with a 0.3% fall in shares outstanding resulted in a 15.5% rise in the bottom line to $1.19 on an adjusted basis in Q4’23.

Overall, we expect Abbott to navigate well in Q1, and we expect higher levels for its stock going forward.

While ABT stock looks like it has more room for growth, it is helpful to see how Abbott’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

[1] Returns as of 4/15/2024
[2] Cumulative total returns since the end of 2016

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