Ride Abbott To $100 With Its New COVID-19 Test?

by Trefis Team
+0.59%
Upside
92.23
Market
92.77
Trefis
ABT
Abbott Labs
Rate   |   votes   |   Share

Based on historical performance, Abbott Labs (NYSE: ABT) appears to be a better bet compared to Medtronic (NYSE:MDT) in the current crisis. The current coronavirus crisis will likely impact medical devices company on two fronts, 1. supply chain disruptions, and 2. decline in number of procedures performed. On the positive side, medical devices companies are also developing new tests for COVID-19. Abbott received FDA approval last week for its 5-minute COVID-19 test. This will help Abbott offset revenue decline, if any, from the decline in procedures and supply disruptions in the near term. Abbott’s stock is down by about -14% compared to about -22% for Medtronic since early February. Looking at fundamental performance over the last few years, Abbott’s average revenue growth of 10% was slightly lower than 13% for Medtronic, but Abbott’s EPS growth of 106% was 18x higher than 6% for Medtronic. Abbott’s EPS growth figure was very high in 2018, due to one time tax adjustments recorded in 2017, which pushed the GAAP EPS (2017) lower.

Based on our Valuation Analysis For Abbott, there could be a potential upside of 20% from the current levels.

Medtronic stock has taken a bigger hit compared to Abbott, considering its higher exposure to the U.S. market (53% of total revenue vs. 36% for Abbott), which has become the epicenter of crisis with the highest number of COVID-19 cases in the world. While the outlook for both companies remains strong, as both the companies are busy with production of devices/tests that are required in the current pandemic, we believe Abbott could be a better bet in the current environment. Abbott’s relatively lower debt load (total debt of $18 billion vs $25 billion for Medtronic), and better geographic diversification, could help it cope better than Medtronic over the crisis. Abbott’s breakthrough with COVID-19 tests, and its key focus on emerging markets, such as India, Brazil, Russia, and China, which so far have been less impacted by the current crisis, compared to the developed economies, could fare well for the company.

Our analysis, Is Abbott Expensive Or Cheap Compared To Medtronic After Declining Over -14%? compares the stock price performance and fundamentals of Abbott and Medtronic over the last few years.

Coronavirus Crisis

  • Abbott’s stock has declined by about 14% since early February, compared to 22% for Medtronic, after the WHO declared a global health emergency relating to Coronavirus.
  • Abbott and Medtronic’s stocks have fallen by about 9% since March 8th, as U.S. cases accelerated.

Historical Performance

  • Abbott Laboratories stock went from $20.21 at the end of 2009 to $86.49 at the end of 2019, representing a change of 328%.
  • During the same time period, Medtronic went from $34.93 to $112.74 representing a change of 222.8%.
  • This implies that Abbott Laboratories stock grew at 1.5x the rate of Medtronic.

Is Abbott Laboratories stock expensive based on a review of the fundamentals?

  • P/E Ratio:
    • Based on trailing 2019 P/E ratios, ABT stock looks attractive compared to prior years and expensive compared to Medtronic.
    • Abbott’s current P/E multiple (based on 2019 results) stands at about 33x, compared to about 22x for Medtronic.
  • Historical Revenue Growth:
    • Abbott’s 2014-19 annualized revenue growth of 10% compares with the 2014-19 annualized revenue growth rate of 13% for Medtronic.
  • Historical EPS Growth:
    • Abbott’s 2014-19 annualized EPS growth of 107% is 18x that of the 2014-19 annualized EPS growth rate of 6% for Medtronic.
  • Total Debt:
    • Abbott’s Total Debt increased from $8 billion in 2014 to $28 billion in 2017, but declined thereafter to $18 billion in 2019.
    • In comparison, Total Debt for Medtronic grew from $12 billion in 2014 to $33 billion in 2017, and it declined to $25 billion in 2019.

Conclusion

While Medtronic has posted slightly higher revenue growth compared to Abbott over the last 6 years, Abbott’s stock has been more resilient through the crisis, thus far, and Abbott could see a larger upside if the health crisis abates, considering its EPS growth has been much higher than Medtronic’s, and it has lower levels of debt. Also, Abbott’s exposure to COVID-19 tests, and its key focus on emerging markets, such as India, Brazil, Russia, and China, which so far have been less impacted by the current crisis, compared to the developed economies, could fare well for the company.

For more detailed charts and a timeline of the 2007-08 crisis, view our dashboard analysis 2007-08 vs. 2020 Crisis Comparison: Abbott Stock Compared To S&P 500.

 

See all Trefis Price Estimates and Download Trefis Data here

What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs For CFOs and Finance Teams | Product, R&D, and Marketing Teams

Rate   |   votes   |   Share

Comments

Name (Required)
Email (Required, but never displayed)
Be the first to comment!