Abbott Earnings Preview: Expect Diagnostics To Lead Q2 Earnings Growth

by Trefis Team
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Abbott Labs (NYSE:ABT) is set to report its Q2 2018 earnings on July 18, and we expect the company to post steady growth, led by its Diagnostics and Generic Pharmaceuticals segments. While the Diagnostics business will continue to benefit from Alere acquisition synergies, Generic Pharmaceuticals will likely see sales ramp up in emerging markets. We have created an interactive dashboard ~ What Is The Outlook For Abbott ~ on the company’s expected performance in 2018.You can adjust the revenue and margin drivers to see the impact on the company’s overall revenues, earnings, and price estimate.

Diagnostics Business To Lead Earnings Growth

We expect Abbott’s Diagnostics business to see a sharp rise in revenues to north of $7.5 billion in 2018, primarily due to the impact of the Alere acquisition, which was closed in October, 2017. The Alere acquisition is helping Abbott in adding tests for heart attacks, influenza, and drug abuse to the company’s suite of diagnostic products. This should aid the company’s overall earnings growth. Looking at Abbott’s Generic Pharmaceuticals, we expect the revenue to grow in mid-single digits in 2018, primarily led by its expansion in emerging markets. The segment saw a 10% revenue growth in the previous quarter. The company has been focused on the emerging markets, and it has sold its developed markets generic pharmaceuticals business. The overall growth in the emerging economies, such as China, Russia, Brazil, and India will likely drive the segment sales in the coming years. In fact, these four markets account for around 75% of the segment revenues. 

Medical Devices Segment To Benefit From St Jude Acquisition Synergies

In the Medical Devices segment, we expect the revenues to grow in mid-single-digits, as the company should leverage the stronger market position that it has gained with the St Jude Medical acquisition in 2017. Also, the company will likely benefit from its robust pipeline. The company is focused on the further clinical development of ABSORB, the world’s first drug-eluting bioresorbable (doesn’t require mechanical removal) vascular scaffolds. Over the last few years, the company has focused on marketing products in its Xience and endovascular franchises, and on increasing the international sales of MitraClip. Last week, the company secured the U.S. FDA approval for the use of its third generation MitraClip heart valve repair device to treat a leaky mitral valve. The company’s continued efforts to develop its pipeline will aid its growth in the long run. 

Overall, we expect the company to post adjusted earnings of $2.90 in 2018. We forecast a price to earnings multiple (TTM) of 23x by the end of 2018, which is slightly lower than most of the estimates for the sector, to arrive at our price estimate of $66 for Abbott Labs. This implies a premium of over 5% to the current market price.

 

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