Price Estimate For Abbott Labs Upgraded To $49
We have revised our price estimate for Abbott Labs’ (NYSE:ABT) stock upwards to $49 in light of its recently announced third quarter results. On the plus side, the company posted impressive operational growth in the Pharmaceuticals, Diagnostics and Medical Devices businesses. However, the weakness in its Nutritionals business continued in China as well as some other international markets. Abbott has suffered some headwinds in China due to the weakness in the country’s pediatric nutrition market. However, the company acknowledged some signs of stabilization, and the situation should become clearer early next year when new food safety regulations go into effect.
Overall, we are more positive about Abbott than before. Its Diagnostics segment grew more than 5%, and with the closure of the Alere acquisition and the launch of Alinity systems in Europe, we expect the momentum to continue going forward. We believe that Abbott’s Diagnostics business could earn as much as $10 billion in annual revenue by 2024. In addition, the Pharmaceuticals business, which is relatively smaller than its other business segments, grew in double digits. This growth was driven by emerging markets including Brazil, Russia, India and China. While healthcare access is improving in these markets, price sensitivity will continue to offer ideal market conditions for generics, which is where Abbott focuses.
In the near term, we believe that the adoption of the recently launched blood glucose monitoring system – Freestyle Libre Flash – will be a key trigger to watch out for. Abbott already markets the device in Europe and Canada, and a large chunk of growth in its international diabetes care sales is coming from the adoption of Freestyle Libre. The launch in the U.S. could help sustain the momentum that Abbott’s diabetes care segment has seen this year. Earlier this year at the Advanced Technologies and Treatments for Diabetes conference, the company presented data from more than 50,000 Freestyle Libre users in Europe which showed that the users are checking their glucose levels more than 16 times a day. This is significantly higher than the frequency for other monitoring systems, and is primarily due to the fact that Freestyle Libre Flash does not require finger pricking. With more frequent monitoring being associated with better health outcomes for diabetes patients, we expect strong demand for the device in the U.S.
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The total market for blood glucose monitoring devices is expected to reach nearly $12 billion by 2020. This will be driven by the growing incidence of diabetes, especially in the Asia Pacific region. However, the U.S. will continue to command a lion’s share of the overall market, which puts the current approval in perspective. Abbott is already a leading player in this market, and we expect its latest product to spur growth of point-of-care measuring devices, which is generally where healthcare monitoring is headed.
Our price estimate of $49 for Abbott Laboratories is slightly below the market.
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