Abbott Earnings Preview: Solid Performance Expected Across Its Segments

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ABT: Abbott Laboratories logo
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Abbott Laboratories

Abbott Labs (NYSE: ABT) is set to report its Q3’16 earnings on October 19th. The company beat street estimates in the second quarter, resulting in increase in its stock price. But over the last couple of months, Abbott’s shares have taken a beating (Read: Why Did Abbott’s Stock Plummet Recently?) because of concerns over impending acquisitions of St. Jude Medical (NYSE: STJ) and Alere (NYSE: ALR). For Q3, we expect the company to report mid-single digit growth in revenue and achieve its EPS guidance of $0.57 to $0.59. The growth drivers for the last quarter likely included the growth in emerging pharma market, as well as the adoption of the  Absorb (bio-resorbable stent), the MitraClip (Mitral Valve Repair Therapy), and the FreeStyle Libre (Glucose Monitoring Device).

Our price estimate of $47.50 for Abbott  is 15% above current price

Emerging Pharma And Diagnostic Business To Post Strong Results

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Abbott has a leading position in pharma market of emerging countries. On an operational basis, the business has grown by 10% over the first of half of the fiscal 2016, as compared to the same period last year. However, most of this growth has been wiped out because of currency headwinds. We expect the company to continue to report strong growth in Q3 because of increased market penetration and market growth. Foreign exchange rates over the last quarter were not as volatile as they were in the first of the half year. As a result, we expect the company to post mid-single digit growth for the quarter on an as-reported basis year over year. In diagnostic business we expect the company to post growth on account adoption of i-Stat and continued strong performance of its Core Laboratory Business.

Medical Device Business To Perform On Expected Line

The vascular segment growth was likely driven by the adoption of Absorb and MitraClip. Abbott launched Absorb in the U.S. in July this year. We are keenly looking forward to update on Absorb’s performance in the U.S. market. In the diabetes business, FreeStyle Libre is likely to post a good quarter on account of strong performance in Europe. The pro-version of this device got FDA clearance last month. The consumer version is still at least a quarter away from being launched in the U.S. We expect strong performance from the diabetes business in coming quarters as well.

While Abbott announced that it is has entered in an agreement with Johnson & Johnson (NYSE: JNJ) to sell its medical optics division, the deal is expected to be closed in Q1 of fiscal 2017 and would not have any effect on performance in 2016 fiscal.

Nutrition Business To Post Flat Growth

Nutrition is Abbott’s largest business and contributes over 30% to our price estimate for the company. Although, Abbott has strong brand presence in both pediatric and adult nutrition, it has been facing competition from local brands in emerging economies. Another cause of concern is slow down in China which is impacting pediatric segment’s performance. The segment is expected to post low single digit growth for Q3 on year-over-year basis.

Things To Watch Out For

We look forward to what management has to say with regards to acquisition of St. Jude and Alere. Both the companies are facing challenges of their own. St. Jude is facing challenges because of battery issues with its ICD and Alere case is already in court. Any ambiguity from the management may further dent the stock in short term.

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