Abbott Earnings: Humira And Nutritional Segments In Focus

ABT: Abbott Laboratories logo
Abbott Laboratories

Abbott Labs (NYSE:ABT) is going to announce its Q2 results on July 18. It is the second major healthcare company in our coverage to announce its results after Johnson & Johnson (NYSE:JNJ) announces its earnings on July 17. (See our note: Johnson & Johnson’s Q2 Earnings: Pharma & Synthes Deal To Drive Growth) We expect continued strong performance by key pharmaceutical drugs Humira, AndroGel, and Lupron supported by nutritional franchise.

Abbott has a presence in all segments of the healthcare industry with operations in development, manufacturing and marketing of pharmaceuticals and other medical products, including nutritionals and diagnostics. The strengthening of U.S. dollar will negatively impact the earnings to some extent. Margins could improve as a result of improved efficiencies across several operating divisions.

Our price estimate for Abbott Labs stands at $66, in-line with the current market price. We will soon update our price estimate to reflect the recent developments.

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See our complete analysis for Abbott Labs

Humira, Nutritional to Drive Growth

Humira is Abbott’s blockbuster drug and contributed nearly 20% to the company’s total revenues in 2011 and in 1Q 2012. It has shown consistent double digit growth rates. And, we have positive expectations from Humira in Q2 2012 as well. Other drugs AndroGel, Creon, Lupron and Synthroid may also continue with their strong showings. In addition, we expect nutritionals sales to surge largely due to market share gains for infant formula Similac and pediatric nutritional products like PediaSure, Ensure and Glucerna.

Strong Long Term Outlook

While in the short term, Abbott might have to encounter headwinds as Tricor goes off-patent in the July 2012. Another worry is the government investigation on Depakote, a drug for which the company has set aside $1.5 billion as litigation settlement. But, we are bullish on the company’s outlook. Abbott has been very proactive with respect to its growth strategy, focusing primarily on pipeline development.

Additionally, in order to avoid the sudden impact of generic competition following patent expiries, Abbott has been trying to reduce its dependence on individual products. As a result, it committed to several purchases in the past like Solvay and Piramal to diversify its portfolio of offerings and expand into emerging markets. The company’s strategy to focus on emerging markets should pay off in long term.

Separately, Abbott will complete its spin-off by the end of 2012 and create two publicly traded companies. This will make the old Abbott immune to the changes in product patents and its sudden impacts, and will bring about more stability in its cash flows.

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