Abbott’s Investors Eying The Value From Acquisitions
Abbott Labs (NYSE:ABT) recently released its Q2 2017 earnings, and investors appear to be feeling positive about the company’s recent acquisitions and the long-term value they may create. It appears that legal battles and FDA notices are things of the past, at least in the near term. The St. Jude Medical acquisition closed in January this year, and Abbott’s management is confident that it can close the Alere acquisition by the end of 2017. Abbott has been aggressive in making two big acquisitions in quick succession. While risky, this underlines the company’s confidence in point-of-care diagnostics, and St Jude’s host of vascular, cardiac rhythm management and electrophysiology products. The performance of the medical devices business in the second quarter, most of which was driven by the St. Jude acquisition, portends an interesting future.
Medical Devices Business Is Source Of Optimism
The St. Jude acquisition has strengthened Abbott’s position in the market for treating chronic pain from spinal stimulation. This is a fast-growing market, and the company has launched some new products that have better efficacy and fewer side effects. MitraClip, which is used for the minimally invasive repair of mitral regurgitation, drove structural heart sales. The new clinical trials, which conclude next year, could expand the device’s market opportunity in the U.S. In addition, the company expects approval of two new devices in the electrophysiology business in the second half of the year.
What To Watch Going Forward
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Going forward, Abbott projects the weakness in the Nutrition business to be somewhat temporary, because of the pending regulatory changes in China and the cyclical nature of private label competition in the U.S. However, we are skeptical about the near-term recovery potential of this business, as other markets point towards secular pricing pressure.
In addition, the company’s performance in cardiac rhythm management suggests that it may be losing share to other competitors which offer MRI-compatible devices. However, Abbott is in process of getting an MRI-conditional label from U.S. regulators.
Our price estimate of $45 for Abbott Laboratories is slightly below the market.
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