Can Abbott Stock Trade Higher Post Q4 Results?

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Upside
114
Market
127
Trefis
ABT: Abbott Laboratories logo
ABT
Abbott Laboratories

Abbott stock (NYSE: ABT) is scheduled to report its Q4 2020 results on Wednesday, January 27. We expect Abbott to likely report mixed results with revenues slightly below and earnings in-line with the consensus estimates, driven by a rebound in demand for medical devices, with an increase in total number of elective surgeries, along with continued growth in the Diagnostics business, led by Covid-19 testing. We expect the company to navigate well based on these trends over the latest quarter.

However, our forecast indicates that Abbott’s valuation is around $130 per share, which is 15% higher than the current market price of around $113. Our interactive dashboard analysis on Abbott’s Pre-Earnings has additional details.

(1) Revenues expected to be slightly below the consensus estimates

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Trefis estimates Abbott’s Q4 2020 revenues to be around $9.8 Bil, slightly lower than the $9.9 Bil consensus estimate. While a deferment in elective surgeries earlier in the year amid the spread of Covid-19 impacted the overall medical devices sales volume, the gradual opening up of economies and resumption of elective surgeries is likely to have aided sales in Q4. Abbott’s Q3 2020 sales were up 9.6% to $8.9 Bil, primarily led by a strong 38% jump in the Diagnostics business, led by Covid-19 testing. Our dashboard on Abbott Revenues offers more details on the company’s segments.

2) EPS likely to be in-line with the consensus estimates

Abbott’s Q4 2020 adjusted earnings per share (EPS) is expected to be $1.35 per Trefis analysis as well as the consensus estimate. Abbott’s adjusted net income of $1.8 Bil in Q3 2020 reflected a 16% growth from its $1.5 Bil figure in the prior-year quarter. This can be attributed to higher revenues and lower operating expenses, including R&D. The margins will likely improve going forward, as the Medical Devices business sees a rebound. For the full-year, we expect the adjusted EPS to be higher at $3.55 compared to $3.26 in 2019.

(3) Stock price estimate higher than the current market price

Going by our Abbott’s Valuation, with an EPS estimate of around $3.55 and a P/E multiple of around 37x in 2020, this translates into a price of $130, which is 15% above the current market price of around $113. Although the 37x figure is higher than levels of under 27x seen in 2019, the multiple is based on 2020 earnings, which we know is being impacted by the pandemic, but as we look forward Abbott is expected to post strong earnings growth in 2021 and beyond. Going by the 2021 earnings estimate of $4.40, ABT stock is currently trading at 26x, which is closer to the range seen over the recent years.

Note: P/E Multiples are based on Share Price at the end of the year and reported (or expected) Adjusted Earnings for the full year

While ABT stock may be undervalued, 2020 has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how counter-intuitive the stock valuation is for Pfizer vs Merck.

See all Trefis Price Estimates and Download Trefis Data here

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