Key points
- Abbott Laboratories reported a stable quarter, with accelerating growth and better-than-expected margins.
- Capital returns are healthy and smooth, with the expectation of sustained increases in distribution and share repurchases.
- Analyst sentiment drives the market and suggests a solid rebound is imminent.
- 5 stocks we prefer to those of Abbott Laboratories
Abbott Laboratories NYSE: ABT the stock price corrected at the end of the first quarter of 2024 due to concerns regarding growth, profitability and capital returns. The first quarter results, however, refute fears and prepare the market for a rebound that could last several quarters. The results point to normalization in the post-COVID world, sustainable growth and margin stability that supports healthy capital returns.
Among Abbott’s attractions are its top-notch businesses and strong balance sheet. The company operates by giving priority to the interests of shareholders. This shows up in its dividend distribution and history, which includes a 2% payout, a low 45% payout ratio, and membership in the Dividend Aristocrats and Dividend Kings.
Abbott’s growth accelerates on demand for medical devices
Abbott Laboratories reported a solid quarter, supported by its global and diversified business model. The company reported net sales of $10 billion, a gain of 2.2%, which is significant for several reasons. Growth of 2.2% is better than expected, the second quarter of growth since growth resumed, and is accelerating despite the impact of reduced COVID-19 testing. Organically, revenue increased 10.8%, excluding the effects of COVID-19 and acquisitions, driven by strength in three of four operating segments.
The regional weak point was the United States, with a 2.1% drop in sales. International sales are up 5.2%. Medical Devices is the strongest segment, with 14.2% growth supported by four of its subsegments, including Diabetes and Heart. Nutrition gained 5.1%, established pharmaceuticals 3.1% and diagnostics fell 17.6% due to COVID-related activity.
Margin news is mixed. The company’s margins shrank due to deleveraging and rising costs, but came in lower than expected. The result is a lower-than-expected single-digit decline in operating and net earnings. The 98 cents in adjusted earnings were down a cent from a year earlier but 3 cents higher than consensus, leading the company to improve its guidance. Abbott Laboratories raised the lower end of the range for revenue and earnings to raise the midpoint for both. The caveat is that the midpoint for the top-line guidance is below consensus, while that for the bottom is above.
Analysts guide Abbott Laboratories higher
Abbott Laboratories is being guided higher by analysts, so the post-release dip in price action may not last long. The 13 analysts tracked by Marketbeat have the stock pegged at Moderate Buy and see it advancing about 12% to the consensus midpoint. Consensus is rising from last month, last quarter and last year and is likely to continue rising now. The latest reports come from Citigroup and Evercore ISI, who have increased their price targets. They see these shares trading between $125 and $128, or about 20% above the current stock.
Abbott presents risks, which could weigh on sentiment and price action this year. The company weathered the initial storm caused by its infant formula, but a second one was brewing. A verdict against its healthcare competitor in a similar case is making the company pay significant damages if juries in the United States agree.
Abbott Laboratories is limited in scope
Abbott Laboratories stock prices corrected at the end of the first quarter to keep the stock’s sideways movement within a set range. The current action is near the midpoint of the range where the stock’s valuation is near 25x and the middle of its historical range. The yield is also near the middle of the historical range, suggesting fair value for the market. As the latest action is bearish, investors might expect ABT stock to move towards the lower end of the trading range. In this scenario, the stock is worth buying when it is near $95 or when a bottom forms.
Before you consider Abbott Laboratories, you’ll want to hear this.
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