What’s Next For Abbott Stock After A 6% Rise This Year?

Abbott (NYSE: ABT) reported its Q4 results last month, with revenues above and earnings aligning with the street estimates. The company reported revenue of $10.24 billion and earnings of $1.19 on a per-share and adjusted basis, compared to the consensus estimates of $10.19 billion and $1.19, respectively. ABT stock is up 6% this year and despite its good Q4, we think it has little room for growth. In this note, we discuss Abbott’s stock performance, key takeaways from its recent results, and valuation.

ABT stock has seen little change, moving slightly from levels of $110 in early January 2021 to around $115 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, ABT stock looks like it has little room for growth. We estimate Abbott’s Valuation to be $127 per share, reflecting less than 10% upside from its current levels of $117. Our forecast is based on a 28x P/E multiple for ABT and expected earnings of $4.60 on a per-share and adjusted basis for the full year 2024. The 28x P/E multiple is slightly higher than the the average value of 25x over the last three years. We have assigned a slightly higher multiple for ABT taking into account the resumption of robust expected earnings growth from 2024 after a slump year in 2023, due to the impact of lower COVID-19-related demand.

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.

Looking forward, Abbott expects its revenue to rise in high single-digits on an organic basis and adjusted earnings to be in the range of $4.50 and $4.70 per share in 2024. This compares with the $4.44 adjusted earnings per share it reported for the full year 2023. However, we think that the positives are already priced in for Abbott stock and it has little room for growth from its current level of $117.

[1] Returns as of 2/21/2024
[2] Cumulative total returns since the end of 2016

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