What To Watch For In Abbott’s Q2 Earnings

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Abbott Laboratories

Abbott Labs (NYSE:ABT) will release its Q2 2017 earnings on July 20, and there are a few things to watch out for. First, Abbott’s nutritional business has suffered some headwinds in China due to weakness in the country’s pediatric nutrition market. This may persist, even though China’s GDP growth accelerated in the second quarter. Abbott has continued to launch new nutritional products to offset the weakness, but it may not be enough yet. The nutritional segment accounts for nearly 30% of Abbott’s value, per our estimates, making it the biggest business for the company. Second, the expansion of Abbott’s diabetes business is likely to continue. The company got a Health Canada license for Freestyle Libre, its glucose monitoring system, at the end of June. The impact of Canadian expansion will be visible in the 3rd quarter. Additionally, the company has signed an agreement with Bigfoot Biomedical whereby the latter will leverage the former’s glucose sensing technology.  It should be noted, though, that this is a fairly small business for Abbott.

Third, it will be interesting to see how Abbott’s existing point-of-care diagnostics business performs in the second quarter. This segment is growing, driven by improvement in convenience, and adoption in emerging markets. Encouraging results can help create positive sentiment among investors and offset doubts stemming from recent issues surrounding Abbott’s negotiation of the Alere acquisition. After months of legal battles, the two companies finally reached an agreement in April when Abbott announced that it will acquire Alere for a little over $5 billion. The acquisition is expected to strengthen Abbott’s diagnostics business, which accounts for roughly 20% of its value according to our estimates.

While controversies have surrounded Abbott ever since it announced two big acquisitions in succession, we expect that investors will still be drawn to the stock given its fairly consistent performance and its dividend payment history. The credit downgrade early this year hasn’t impacted the company much to this point. As controversies and legal issues are put to rest, we expect market to reward the strategic fit of the acquisitions.

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Our price estimate of $45 for Abbott Laboratories is slightly below the market.

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