Why Abbott’s Stock Has Rallied By 40% This Year
Abbott Labs (NYSE:ABT) has seen its stock gain nearly 40% this year. Interestingly, there generally weren’t specific events that drove a significant increase in the price. The stock rally has continued throughout the year, which suggests that an improved growth outlook on account of recent strategic acquisitions, as well as other favorable trends, is a most likely cause. Take a look at our interactive breakdown of Abbott’s business to learn more.
Our price estimate for Abbott Labs stands at $49, which is slightly below the current market price.
Investors Have Rewarded Abbott’s Growth Outlook, Which Has Improved Due To Strategic Acquisitions
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Between 2010 and 2016, Abbott struggled with its revenue growth, barely registering annual growth of 1%. However, recent strategic M&A activities have positioned it better for future expansion. We expect Abbott’s total revenue to jump nearly 75% in the next 5 years. While most of it will come from the additive effect of the acquisitions, we believe the subsequent growth will be higher as Abbott has gained access to high-growth markets. The company acquired St. Jude Medical and Alere, and has sold its optical business to J&J. While the sale of the optics business has helped it manage its financial leverage, the other two acquisitions have given it a leading position in several cardiovascular device sub-segments.
St. Jude Medical Acquisition Helping Abbott Manage Competitive Medical Devices Market
The St. Jude Medical acquisition has given Abbott good exposure to rapid growth segments such as atrial fibrillation, heart failure, structural heart and chronic pain. With Abbott’s existing portfolio, which includes coronary devices and mitral valve devices, the acquisition will give it a leading position in most sub-segments of the cardiovascular market. This should better position Abbott to combat price competition and benefit from cross-selling opportunities
Alere Acquisition Gives Abbott Access To Growing Point-Of-Care Diagnostics Market
Meanwhile, the Alere acquisition will give Abbott a strong position in the point-of-care diagnostics market. The combined entity will generate nearly $2.5 billion in point-of-care sales, capturing more than a third of the market. This is meaningful because point-of-care diagnostics is one of the fastest growing sub-segment within the diagnostics market.
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