Down 7% This Year Will Abbott Stock See Higher Levels Post Q2 Results?

Abbott (NYSE: ABT) will report its Q2 2024 results on Thursday, July 18. We expect the company to post revenue of $10.3 billion and earnings of $1.10 on a per share and adjusted basis, broadly aligning with the street expectations. We expect a low single-digit uptick in sales for the company, amid a continued growth in global procedure volume. Although we expect Abbott to post in-line results in Q2, we believe there is ample room for its stock to grow from its current levels of $103. Our interactive dashboard analysis of Abbott’s Earnings Preview has more details on the company’s revenues and earnings 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. It has seen little change, moving slightly from levels of $110 in early January 2021 to around $105 now, vs. an increase of about 50% 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 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 ample room for growth. We estimate Abbott’s Valuation to be around $123 per share, about 20% above the current market price of $103. At its current levels, ABT stock is trading at 22x forward expected earnings of $4.60 per share in 2024. Abbott has guided for earnings to be in the range of $4.55 and $4.70 per share. The 22x figure is slightly lower than the stock’s  average P/E ratio of 24x over the last five years.

Looking at the previous quarter, Abbott’s revenue of $10 billion in Q1 was up 2.2% y-o-y. The company reported a 14% jump in medical device segment sales, nutrition was up 5%, and established pharmaceuticals saw a 3% rise in revenue. Growth in these segments was partly offset by an 18% fall in Diagnostics revenues due to lower demand for COVID-19 testing. Excluding the COVID-19 tests, the Diagnostics sales were up 2.7%. Within medical devices, diabetes sales were up 19.5% led by FreeStyle Libre. The company saw its adjusted pre-tax income margin decline 120 bps y-o-y to 20.4% in Q1. This resulted in a 5% fall in the bottom line to $0.98 on an adjusted basis.

Coming to the latest 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 $263 million in Q2’23 and this figure will be lower in Q2’24, slightly offsetting the growth from core laboratory diagnostics. Overall, we expect Abbott to post an in-line Q2, and the near-term movement for its stock will likely depend on its guidance.

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 7/16/2024
[2] Cumulative total returns since the end of 2016

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