Abbott Laboratories
ABT
has been delivering consistent organic growth in the Established Pharmaceuticals Division (EPD) and Diabetes segments. However, the soft neuromodulation business is a challenge. The stock currently carries a Zacks Rank #3 (Hold). You can see
the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here
.
Over the past year, Abbott has been outperforming the
industry
it belongs to. The stock has gained 21.5% against the industry’s 7.4% fall.
Abbott posted better-than-expected earnings and revenue numbers for the third quarter of 2021. Overall, year-over-year improvements were robust. Excluding COVID-19 testing-related sales, which totaled $1.9 billion in the quarter, organic sales increased 12% year over year. Even though COVID-19 case rates surged in the United States and other geographies during the third quarter, the company registered strong growth in its more consumer-facing businesses like nutrition, established pharmaceuticals and diabetes care. This mitigated the modest impacts of the pandemic that Abbott witnessed from the surge in cases in certain areas of its hospital base businesses.
In the third quarter, within Nutrition, strong growth was led by U.S. pediatric and international adult nutrition. In Pediatric Nutrition, the company registered strong growth in the United States from continued share gains in infant formula and toddler portfolio. Sales of Pedialyte, the company’s market-leading rehydration brand, once again grew in strong double digits, driven by the solid market uptake of several recently launched new products as well as investments in direct consumer promotion. In Adult Nutrition, there was mid-teens growth internationally on strong demand for Ensure and Glucerna brands, including new users entering these categories and existing customers increasing their usage.
Within Diagnostics, sales increased over 45%, led by growing demand for Abbott’s portfolio of COVID-19 tests as well as improvement in the base business. During the quarter, as the Delta variant spread and COVID cases surged, particularly in the United States, demand for testing, especially rapid tests increased significantly. Within EPD, third-quarter sales grew over 15% year over year, led by double-digit growth in China, Russia and India, which led to overall sales growth of 18% in key emerging markets.
Abbott has a consistent record of paying dividends with
five-year annualized dividend growth being 12.72%
.
On the flip side, with a spike in new COVID-19 case counts through the third quarter, Abbott noted modest impacts in its base business. More specifically, some softness was seen as the Delta variant spread and new cases increased in the United States, particularly more in August and throughout September. This led to a slowdown in the company’s hospital base business in certain areas.
Further, Abbott’s Neuromodulation arm reported an 8.3% year-over-year decline on an organic basis in the third quarter. Abbott noted that as the business is elective, it is having a hard time in terms of recovery amid coronavirus resurgence. The company currently is not much hopeful about a rebound in the fourth quarter within this business.
Added to this, foreign exchange is a major headwind for Abbott due to a considerable percentage of its revenues coming from outside the United States. The strengthening of the euro and some other developed market currencies has constantly been hampering the company’s performance in the international markets.
Key Picks
A few better-ranked stocks in the broader medical space that investors can consider are
AMN Healthcare Services, Inc.
AMN
,
Apollo Endosurgery, Inc.
APEN
and
Laboratory Corporation of America Holdings
LH
.
AMN Healthcare, carrying a Zacks Rank #1, has a long-term earnings growth rate of 16.2%. The company surpassed earnings estimates in the trailing four quarters, delivering a surprise of 19.5%, on average.
AMN Healthcare has outperformed its industry over the past year. AMN has gained 66.1% versus the 54.9% industry decline.
Apollo Endosurgery, carrying a Zacks Rank #1, has a long-term earnings growth rate of 7%. The company‘s earnings surpassed estimates in the trailing four quarters, delivering a surprise of 25.6%, on average.
Apollo Endosurgery has outperformed its industry in the past year. APEN has gained 125.6% compared with the industry’s 1.2% growth.
Laboratory Corporation surpassed earnings estimates in each of the trailing four quarters, the average surprise being 25.7%. The company currently sports a Zacks Rank #1.
Laboratory Corporation’s long-term earnings growth rate is estimated at 10.6%. The company’s earnings yield of 9.4% compares favorably with the industry’s 3.4%.
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