Here’s Why We Think Abbott Stock Will Rise Post Q1

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Downside
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Market
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Trefis
ABT
Abbott Laboratories

Abbott stock (NYSE: ABT) is scheduled to report its Q1 2021 results on Tuesday, April 20. We expect Abbott to report revenues in-line and earnings above the consensus estimates, driven by continued demand for Covid-19 testing, along with a rebound in demand for medical devices. 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 $140 per share, which is 15% higher than the current market price of around $122. Our interactive dashboard analysis on Abbott’s Pre-Earnings has additional details.

(1) Revenues expected to be in-line with the consensus estimates

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Trefis estimates Abbott’s Q1 2021 revenues to be around $10.7 Bil, in-line with the consensus estimate. Abbott in 2020 saw a decline in medical devices revenue, due to deferment of elective surgeries given the spread of Covid-19. However, the decline was more than offset by strong growth in diagnostics sales driven by Covid-19 testing. While the testing is expected to remain high in the near term, especially for BinaxNOW (Abbott’s 15-minute Covid-19 test) there has been a rebound in volume of elective surgeries over the recent months, and it should augur well for Abbott’s top-line expansion in Q1. Abbott’s Q4 2020 sales were up 29% y-o-y to $10.7 Bil, primarily led by a massive 2x surge in the diagnostics sales, led by Covid-19 testing. Our dashboard on Abbott Revenues offers more details on the company’s segments.

2) EPS likely to top the consensus estimates

Abbott’s Q1 2021 adjusted earnings per share (EPS) is expected to be $1.35 per Trefis analysis, 5% above the consensus estimate of $1.28. Abbott’s adjusted net income of $2.6 Bil in Q4 2020 reflected a large 53% growth from its $1.7 Bil figure in the prior-year quarter. This can be attributed to higher revenues and operating expenses, including R&D and SG&A, growing at a slower pace compared to the revenue growth. This trend is expected to continue in Q1 as well, bolstering the overall earnings growth. For the full-year, we expect the adjusted EPS to be higher at $5.25 compared to $3.67 in 2020.

(3) Stock price estimate 15% higher than the current market price

Going by our Abbott’s Valuation, with an EPS estimate of around $5.25 and a P/E multiple of around 27x in 2021, this translates into a price of $140, which is 15% above the current market price of around $122. At current levels of $122, Abbott is trading at 23x its expected EPS of $5.25 in 2021, and the 23x figure compares with levels of 30x seen as recent as late 2020, and 27x seen in late 2019, implying there is more room for growth for ABT stock.

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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