Abbott Laboratories (NYSE:ABT) appears poised for sustained growth in the upcoming quarters, propelled by promising opportunities within its core Diagnostics business. Despite facing challenges such as forex fluctuations and a decline in COVID-related sales, the company’s increased 2023 outlook fosters positive sentiment.
Over the last six months, ABT stock has demonstrated resilience, with a 4.6% gain, outperforming the industry’s 4.8% decline and the S&P 500 composite’s 7.8% rise.
With a market capitalization of $192.36 billion, Abbott anticipates a robust 9% growth over the next five years, underscoring its commitment to maintaining a strong performance. Notably, the company has consistently surpassed earnings estimates in the past four quarters, with an average surprise of 6.76%.
Diving deeper into Abbott’s current dynamics, several factors contribute to its overall outlook:
Robust Prospects in Core Diagnostics
Abbott is actively expanding its Diagnostics business, constituting 24% of total revenues in Q3 2023. While demand for COVID-19 diagnostic tests has waned, growth in routine diagnostics both in the U.S. and internationally has offset this decline. The blood transfusion testing business in the U.S. is witnessing strong growth, rebounding from the impact of lower plasma donations during the pandemic. Additionally, the Rapid Diagnostics segment experienced increased demand for respiratory tests in anticipation of an early flu season.
Sales Recovery in Nutrition Business
Following setbacks related to the recall of certain infant powder formula products, Abbott’s Nutrition business has successfully regained market share since the beginning of 2023. The U.S. infant formula business has fully recovered its lost market share, while adult nutrition is gaining momentum, driven by global sales of Abbott’s complete and balanced nutrition brands, Ensure and Glucerna.
Upbeat Guidance
Abbott’s full-year adjusted earnings outlook (excluding specified items) is in the range of $4.42-$4.46, up from the previous range of $4.30-$4.40. The company projects low double-digit organic sales growth for 2023, excluding COVID-19 testing-related sales, and anticipates COVID-19 testing-related sales of around $1.5 billion.
Despite these positive indicators, some challenges persist:
Foreign Exchange Impact
The fluctuation of foreign exchange rates remains a significant headwind for Abbott, as a substantial portion of its revenue comes from outside the United States. The strengthening of the euro and other developed market currencies negatively impacted the company’s international market performance, with a 1.4% YoY sales decline in the third quarter.
Declining COVID Testing Demand
Abbott’s diagnostic tests experienced exceptional revenue growth during the COVID-19 pandemic. However, with the easing of the public health emergency and declining demand for COVID-19 tests, the Rapid Diagnostics segment saw a 59.2% YoY decrease in sales in Q3 2023.
Estimate Trends
Over the past 90 days, the Zacks Consensus Estimate for Abbott’s earnings has increased from $4.40 to $4.44. Meanwhile, the consensus estimate for the company’s 2023 revenues is pegged at $40.01 billion, indicating an 8.4% decline from the year-ago quarter’s reported figure.
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