Lower Testing Demand To Weigh On Abbott’s Q2?

Abbott (NYSE: ABT) will report its Q2 2023 results on Thursday, July 20. We expect the company to post revenue and earnings in line with the street expectations. Abbott will see a decline in sales given the forex headwinds and lower Covid-19-related testing demand. Although we expect Abbott to post an in-line Q2, our forecast indicates that ABT stock has some room for growth, as discussed below. Our interactive dashboard analysis of Abbott Earnings Preview has additional details.

(1) Revenues are expected to be lower compared to the prior-year quarter

• Trefis estimates Abbott’s Q2 2023 revenues to be around $9.7 billion, reflecting a 14% y-o-y decline and aligning with the consensus estimate.
• The revenue decline can primarily be attributed to lower demand for Covid-19 testing and forex headwinds.
• For perspective, Abbott expects total Covid-19-related sales of $1.5 billion in 2023, compared to $8.4 billion last year.
• However, the company’s other businesses – Medical Devices, Nutrition, and Established Pharmaceuticals – will likely continue to see steady sales growth, driven by a continued pick up in procedures volume.
• Looking at Q1, the company reported total revenue of $9.7 billion, down 18% y-o-y, primarily due to a 49% decline in Diagnostics sales.
• Our dashboard on Abbott Revenues offers more details on the company’s segments.

(2) EPS likely to be in line with the consensus estimates

• Abbott’s Q2 2023 adjusted earnings per share (EPS) is expected to be $1.05 per Trefis analysis, aligning with the consensus estimate.
• Abbott’s adjusted net income of $1.8 billion in Q1 2023 reflected a 41% fall from its $3.1 billion figure in the prior-year quarter. This can be attributed to lower revenues and about 900 bps operating margin contraction due to higher costs. Our Abbott Operating Income Comparison dashboard has more details.
• For the full-year 2023, we expect the adjusted EPS to be lower at $4.40, compared to $5.34 in 2022.

(3) ABT stock looks like it has more room for growth

• We estimate Abbott’s Valuation to be around $122 per share, about 15% above the current market price of $107.
• At its current levels, ABT stock is trading at a forward P/E multiple of 24x based on our EPS estimate of $4.40 for 2023, aligning with its last three-year average.
• However, we have assigned a slightly higher P/E multiple of around 28x, given that Abbott will likely return to earnings growth from 2024 after a decline in 2023. Abbott will see a dip in sales and earnings in 2023 owing to its diagnostics business. However, it should return to growth next year.
• If the company reports upbeat Q2 results and provides a 2023 outlook better than the street estimates, the P/E multiple will likely be revised upward, resulting in higher levels for ABT stock.

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.

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[1] Month-to-date and year-to-date as of 7/11/2023
[2] Cumulative total returns since the end of 2016

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