Is The Rally Over For Abbott Stock?

by Trefis Team
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Abbott Labs’ stock (NYSE:ABT) trades at $107 currently and it has gained 24% in value so far this year. It traded at a pre-Covid high of $89 in February, and it is currently 20% higher than that level. Also, ABT stock has gained 71% from the low of $62 seen in March 2020, as the demand for its Covid-19 tests have increased, and deferred surgeries, which impacted Abbott’s business earlier in the year, have now resumed, indicating the worst is probably behind for Abbott. That said, going by historical performance, and in view of the strong rally in ABT stock since late March, we believe that the stock has little room for growth in the near future. Our conclusion is based on our detailed analysis of Abbott’s stock performance during the current crisis with that during the 2008 recession in an interactive dashboard analysis.

2020 Coronavirus Crisis

Timeline of 2020 Crisis So Far:

  • 12/12/2019: Coronavirus cases first reported in China
  • 1/31/2020: WHO declares a global health emergency.
  • 2/19/2020: Signs of effective containment in China and hopes of monetary easing by major central banks helps S&P 500 reach a record high
  • 3/23/2020: S&P 500 drops 34% from the peak level seen on Feb 19, as Covid-19 cases accelerate outside China. Doesn’t help that oil prices crash in mid-March amid Saudi-led price war
  • Since 3/24/2020: S&P 500 recovers 51% from the lows seen on Mar 23, as the Fed’s multi-billion dollar stimulus package suppresses near-term survival anxiety and infuses liquidity into the system.

 

 

In contrast, here’s how Abbott stock and the broader market performed during the 2007/2008 crisis.

Timeline of 2007-08 Crisis

  • 10/1/2007: Approximate pre-crisis peak in S&P 500 index
  • 9/1/2008 – 10/1/2008: Accelerated market decline corresponding to Lehman bankruptcy filing (9/15/08)
  • 3/1/2009: Approximate bottoming out of S&P 500 index
  • 1/1/2010: Initial recovery to levels before accelerated decline (around 9/1/2008)

Abbott Stock Performance Over 2007-08 Financial Crisis

We see ABT stock declined from levels of around $19 in September 2007 (pre-crisis peak for markets) to levels of around $17 in March 2009 (as the markets bottomed out), implying ABT stock lost 11% from its approximate pre-crisis peak. It recovered post the 2008 crisis, to levels of about $20 in early 2010, rising by 17% between March 2009 and January 2010.

S&P 500 Performance Over The 2007-08 Financial Crisis

S&P 500 Index saw a decline of 51%, falling from levels of 1,540 in September 2007 to 757 in March 2009. It then rallied to levels of 1,124, rising by about 48% between March 2009 and January 2010.

Fundamentals

How Do Abbott’s Fundamentals Look In Recent Years?

Abbott’s Revenues grew a strong 56% from $20.4 billion in 2015 to $31.9 billion in 2019, primarily led by multiple acquisitions, including that of St. Jude Medical and Alere. Despite the strong growth in revenues, the company’s margins fluctuated primarily due to one-off items related to restructuring, and changes in tax law among others. This resulted in EPS declining from $2.94 per share in 2015 to $2.07 in 2019. For better clarity, the company’s adjusted EPS grew from $2.16 to $3.26 over the same period.

Survival Check

Does Abbott Have A Sufficient Cash Cushion To Meet Its Obligations Through The Coronavirus Crisis?

Abbott’s total debt decreased from $22.0 billion in 2016 to $18.1 billion in 2019, while its total cash also decreased from $18.8 billion to $4.1 billion over the same period. The company also generated $6.1 billion in cash from its operations, and it appears to be in a good position to weather the crisis.

CONCLUSION

Phases of Covid-19 crisis:

  • Early- to mid-March 2020: Fear of the coronavirus outbreak spreading rapidly translates into reality, with the number of cases accelerating globally
  • Late-March 2020 onward: Social distancing measures + lockdowns
  • April 2020: Fed stimulus suppresses near-term survival anxiety
  • May-June 2020: Recovery of demand, with gradual lifting of lockdowns – no panic anymore despite a steady increase in the number of cases
  • July-September 2020: Poor Q2 results for many companies, but continued improvement in demand and a decline in the number of new cases and progress with vaccine development buoy expectations

Going by the historical performance and in view of the strong rally in Abbott stock since late March, we believe that the stock has little room for growth in the near future.

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