What Will Drive Abbott Labs’ Near Term Growth

by Trefis Team
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Abbott Labs (NYSE:ABT) has seen strong revenue growth in the recent past, primarily reflecting the impact of acquisitions it made over the last couple of years. The company’s Diagnostics business will likely see a double digit growth for the full year 2018, reflecting the impact of the Alere acquisition, which was closed in Q4 2017. Abbott is seeing steady growth in its Medical Devices and Generic Pharmaceuticals business, and we expect this trend to continue in the near term, primarily led by growth in the 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 forecast Abbott’s Diagnostics business to see a sharp rise in revenues to north of $7 billion in 2018, primarily due to the impact of the Alere acquisition. In fact, rapid diagnostics generated over $1 billion in sales in H1 2018. Apart from the acquisition impact, Abbott is seeing market share gains in its core laboratory, which grew in low double digits in H1 2018. These trends will likely continue in the near term, and drive the segment revenues higher. 

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 low double digit revenue growth in H1 2018. The company has been focused on the emerging markets, especially China and India, and is seeing strong growth in these regions. However, it will be interesting to see the near term trends in the Indian market, given the company saw mid teens segment revenue growth in Q3 last year, amid the impact from transition to the GST (Goods and Services Tax) structure. 

In the Medical Devices segment, we forecast the revenues to grow in mid-single-digits. This growth will primarily be led electrophysiology, which is seeing strong demand of late, and saw revenue growth in early twenties percent in the previous quarter. The company is seeing higher demand for its newly launched Confirm RxTM Insertable Cardiac Monitor (ICM). Apart from electrophysiology, structural heart continues to benefit from higher MitraClip sales. We expect this trend to continue in the near term, and drive the segment growth. However, we forecast only a modest growth in the Nutrition segment, primarily from Ensure and Glucerna brands, as high growth in emerging markets will likely be offset by a slow growth in the U.S. 

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, to arrive at our price estimate of $67 for Abbott Labs, which is slightly above the current market price.

 

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