Abbott Labs (NYSE:ABT) is scheduled to release its earnings for the first quarter of this year on April 17. This is the first earnings result after the company spun off its proprietary pharmaceutical division as Abbvie Inc (NYSE:ABBV) and all eyes will now be on the remaining divisions of the company.
We expect the nutritionals division to be the key driver of revenue growth as favorable demographics in the developed markets drive demand. The untapped opportunity in emerging markets is also a big plus for the division. Further, we expect Abbott’s profit margins to increase as the company remains focused on increasing efficiency.
Abbott’s share price is up over 15% since the spin-off and the stock currently trades at around $37. We are in the process of updating our model for the company and will soon release a fresh price estimate.
Nutritional Division To Drive Growth
According to our estimates, the nutritional division is the largest and most promising division within Abbot Labs and accounts for over 30% of our estimated value for the stock. The segment has witnessed nearly 7-8% revenue growth over the last couple of years driven equally by price and volume improvements. In 2012, overall revenue from this segment grew by 7.7%, accounting for foreign exchange losses, on a 4.2% increase in sales volume and 4.5% growth in prices.
Going forward, we expect the nutritional division’s sales volumes to continue growing in developed as well as emerging markets. While in developed countries the aging population and an increasing rate of chronic diseases among the older population will continue to drive demand for nutrition products, the rise of the middle class is likely to boost sales in emerging markets. Abbott already has a strong presence in China and recently opened a nutritional R&D center in India to develop affordable nutrition products for the country’s vast population. We believe that these affordable products will open previously untapped markets for the firm and continue to propel the company’s sales.
Abbott has also made some manufacturing and distribution process changes that are likely to drive margin improvements across its businesses.
Expecting More Data From The Vascular Division
Abbott’s vascular division saw some action late last year when Xience Xpedition, the company’s next-generation drug-eluting stent (DES), received regulatory approval in the U.S. in December. The Xience portfolio brought in revenues of around $1.6 billion for the company in 2012, and it will be interesting to see if the latest approval in the U.S. accelerates revenue growth for this drug.
We will also look for the management’s opinion on MitraClip, a device for the treatment of mitral regurgitation (one of the most common heart valve conditions). As mentioned in a previous article, Abbott Labs got conflicting responses from U.S. regulators regarding the pending approval of MitraClip last month. While the FDA staff recommended against approving the device and seeked more data, an advisory panel to the FDA voted in favor of the device, stating that its benefits outweigh the risks. MitraClip is one of the major devices in Abbott’s vascular products pipeline and we are waiting to know more about Abbott’s management opinion about the situation.