VALUATION HIGHLIGHTS
- Medical Devices constitute 44% of the Trefis price estimate for Abbott Labs's stock.
- Diagnostics constitute 26% of the Trefis price estimate for Abbott Labs's stock.
- Nutritionals constitute 18% of the Trefis price estimate for Abbott Labs's stock.
WHAT HAS CHANGED?
ABT Stock Performance In Recent Years
The changes in ABT stock have been far from consistent. Returns for the stock were 31% in 2021, -21% in 2022, 2% in 2023, and 5% in 2024.
In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, 24% in 2023, and 23% in 2024 - indicating that ABT underperformed the S&P in 2022, 2023 and 2024.
Q4 2024 Performance
Abbott's Q4 revenues were up 7.2% y-o-y to $11 billion, primarily led by a 13.7% rise in Medical Devices sales and a 3.8% growth in Established Pharmaceuticals, while Diagnostics revenues fell 0.6%, and Nutrition was up 4.5%. The adjusted EPS grew 12.6% to $1.34 in Q4 2024 from $1.19 in Q4 2023.
Coronavirus Crisis Impact On Abbott
Given that the healthcare institutions were focused on Covid-19 and other emergency cases, several types of elective surgeries were postponed in 2020, impacting Abbott's medical device sales.
However, the company's Diagnostics business in the U.S. saw a massive 2x sales growth between 2019 and 2022 due to Covid-19 testing. Now that the pandemic is behind us, Abbott has seen a slowdown in demand for the Diagnostics business. On the flip side, with a rise in total procedure volume, the company is seeing increased sales for its medical devices products.
FDA Approvals
VARIPULSE Platform – a cardiac ablation system – was approved in November 2024.
Simplera Continuous Glucose Monitoring (CGM) System was approved in July 2024.
Libre Rio, an OTC device that targets people with type 2 diabetes who do not use insulin, and Lingo, that helps to track glucose, were approved by the U.S. FDA in June 2024.
FDA approved the company's transcatheter aortic valve implantation (TAVI) system, Navitor, to treat people with severe aortic stenosis who are at high or extreme risk for open-heart surgery in 2023.
FreeStyle Libre 3, Abbott's latest continuous glucose monitoring device, secured FDA clearance in May 2022.
Abbott secured the U.S. FDA approval for its Portico with FlexNav transcatheter aortic valve replacement (TAVR) system in Sep 2021. This system is used to treat people with severe aortic stenosis who are at high risk for open-heart surgery.
Abbott, in 2019, secured the U.S. FDA approval for its Proclaim XR neuro-stimulation system, which uses low doses of mild electrical pulses to change pain signals traveling from the spinal cord to the brain. Abbott could see strong sales of the new device, given that 50 million people in the U.S. suffer from chronic pain.
Also, the U.S. FDA approved Abbott's ARCHITECT STAT High Sensitivity Troponin-I blood test, which aims to identify heart attacks hours earlier than previous methods.
Medical Devices Business Doing Well
Abbott's Medical Devices business is currently performing strongly, primarily fueled by increased use of its HeartMate device. Despite a temporary setback in 2020 due to the pandemic, the segment has experienced consistent growth recently, driven by strong sales in electrophysiology, structural heart, and Freestyle Libre.
The electrophysiology division's growth is supported by the increasing adoption of the Confirm Rx Insertable Cardiac Monitor (ICM), while the structural heart division is benefiting from robust sales of the Amplatzer Occluder and MitraClip.
Notably, the U.S. FDA has approved MitraClip for treating heart failure in patients with clinically significant secondary mitral regurgitation, further boosting this segment.
POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE
Below are some key drivers of Abbott's value that present opportunities for upside or downside to the current Trefis price estimate:
- Abbott's Diagnostics Revenue:
Abbott's Diagnostics revenue experienced a dramatic doubling from $7.7 billion in 2019 to $16.6 billion in 2022, driven by the immense demand for COVID-19 testing. As the pandemic's impact has lessened, this demand has decreased, resulting in sales of $9.3 billion in 2024. Looking ahead, we project Abbott's Diagnostics revenue to exceed $14 billion by the end of our review period in 2031. However, if the company does not see a post-pandemic recovery and the segment's revenue falls below $9.5 billion by that time, our price estimate would face a 10% downside.
- Abbott's Gross Margin:
Abbott's Gross Profit Margin has seen a decline from 59% in 2017 to approximately 56% in 2024. We anticipate a reversal of this trend, projecting the margin to recover to 59% by the end of our forecast period.
However, if increased competition from new players compels Abbott to lower its prices, resulting in a 300 basis point decrease in the profit margin from the current level, our price estimate could face a downside of over 20%.
BUSINESS SUMMARY
Founded in 1888, Abbott Laboratories is a multinational, diversified healthcare company with operations spanning the globe. The company is structured into four main business segments: Nutritional Products, Diagnostics, Medical Devices, and Established Pharmaceuticals.
The Nutritional Products segment offers a range of pediatric, adult, healthy living, and sports nutrition products, including infant formulas, snack bars, and meal replacement shakes.
The Diagnostics segment provides systems and tests for screening various conditions such as drug abuse, cancer, therapeutic drug levels, fertility, physiological disorders, and infectious diseases like hepatitis and HIV.
The Medical Devices segment focuses on minimally invasive devices for treating heart diseases, strokes, carotid artery diseases, and other significant vascular conditions.
Lastly, the Established Pharmaceuticals segment manufactures and markets a wide variety of generic drugs internationally, outside of the United States.
SOURCES OF VALUE
Expansion in emerging markets to drive growth
Currently, over half of Abbott's revenue is generated from emerging markets, and the company's management has consistently emphasized its strategy to further penetrate these high-potential regions. In recent years, Abbott has actively taken steps to broaden its footprint and product offerings within many of the world's most populous and rapidly expanding economies.
Strong brand recognition and continued investment in the product pipeline
Abbott holds leading positions in numerous product categories and consistently utilizes its strong brand recognition to introduce new offerings. The company's commitment to innovation is evident from the increase in annual new product launches, a result of its investments in research and development, as well as strategic acquisitions. This period has also resulted in an increase in both clinical trials and patent applications, demonstrating Abbott's intensified focus on innovation.
KEY TRENDS
Rapidly growing emerging markets
The rapid growth of per capita income in many emerging markets presents a significant opportunity for Abbott to expand its business in these regions. Furthermore, increasing health awareness driven by new research and greater access to information is also fueling growth. However, the presence of patent law challenges in some emerging markets could potentially hinder Abbott's long-term growth prospects in those areas.
Aging population in the developed world
The developed world is experiencing an aging trend in its adult population. This demographic shift is expected to drive increased demand for adult nutrition products and diagnostic services, which should have a positive effect on Abbott's revenue streams.
