[Updated: 6/2/2021] Abbott Revised Guidance
The stock price of Abbott (NYSE:ABT) has seen a large 10% drop over the last five trading days. The decline can be attributed to the company’s announcement of revised earnings guidance for the full year 2021. Abbott now expects the adjusted EPS to be in the range of $4.30 and $4.50 for 2021, compared to its earlier estimates of $5.00. Investors weren’t happy with this announcement, and ABT stock plunged over 10% in a single trading session yesterday (Jun 1).
The revision in earnings estimates comes after a steady rise in vaccination for Covid-19, with over 40% of the U.S. population now being fully vaccinated. This means that the demand for testing has come down, a trend expected to continue going forward. For Abbott, it was the Covid-19 tests that resulted in a large 40% rise for its Diagnostics revenue in 2020, and a massive 2.2x growth in Q1 2021. However, now with several countries working on large scale vaccination programs, it was expected that the demand for Covid-19 testing will come down.
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In our earlier updates on ABT stock, we discussed that as the company sees a slowdown in its Diagnostics business, Abbott’s other businesses, primarily Medical Devices, will likely drive the revenue growth. This can be attributed to an increased volume of overall procedures. Also, we believe that the new guidance for Abbott appears to be very conservative, even if we were to model slower growth in the Diagnostics business, compared to a 40% jump last year.
Given that ABT stock has fallen 10% in just five days, will it resume its downward trajectory over the coming weeks, or is a rise in the stock imminent? We believe that the stock will rebound in the near term, going by the historical pattern in ABT stock. Using the recent trend (10% fall in a week) and ten years of historical stock data, the Trefis AI engine finds that ABT stock will likely move higher over the next one month (twenty-one trading days).
According to the Trefis Machine Learning Engine, which identifies trends in a company’s stock price using historical stock data, returns for ABT stock average around 4% in the next one-month (twenty-one trading days) period after experiencing a 5% fall in a week (five trading days), slightly higher than the 3.1% expected return for the S&P500 over the next month (twenty-one trading days). More importantly, there is a solid 70% probability of a positive return over the next 21 trading days and 57% probability of a positive excess return.
But how would these numbers change if you are interested in holding ABT stock for a shorter or a longer time period? You can test the answer and many other combinations on the Trefis Machine Learning Engine to test Abbott stock chances of a rise after a fall. You can test the chance of recovery over different time intervals of a quarter, month, or even just one day!
Some Fun Scenarios, FAQs & Making Sense of Abbott Stock Movements:
Question 1: Is the average return for Abbott Laboratories stock higher after a drop?
Answer: Consider two situations,
Case 1: Abbott Laboratories stock drops by -5% or more in a week
Case 2: Abbott Laboratories stock rises by 5% or more in a week
Is the average return for Abbott Laboratories stock higher over the subsequent month after Case 1 or Case 2?
ABT stock fares better after Case 1, with an average return of 3.8% over the next month (21 trading days) under Case 1 (where the stock has just suffered a 5% loss over the previous week), versus, an average return of 0.8% for Case 2.
In comparison, the S&P 500 has an average return of 3.1% over the next 21 trading days under Case 1, and an average return of just 0.5% for Case 2 as detailed in our dashboard that details the average return for the S&P 500 after a fall or rise.
Try the Trefis machine learning engine above to see for yourself how Abbott Laboratories stock is likely to behave after any specific gain or loss over a period.
Question 2: Does patience pay?
Answer: If you buy and hold Abbott Laboratories stock, the expectation is over time the near term fluctuations will cancel out, and the long-term positive trend will favor you – at least if the company is otherwise strong.
Overall, according to data and Trefis machine learning engine’s calculations, patience absolutely pays for most stocks!
For ABT stock, the returns over the next N days after a -5% change over the last 5 trading days is detailed in the table below, along with the returns for the S&P500:
Question 3: What about the average return after a rise if you wait for a while?
Answer: The average return after a rise is understandably lower than after a fall as detailed in the previous question. Interestingly, though, if a stock has gained over the last few days, you would do better to avoid short-term bets for most stocks – although ABT stock appears to be an exception to this general observation.
It’s pretty powerful to test the trend for yourself for Abbott Laboratories stock by changing the inputs in the charts above.
[Updated: 5/28/2021] QDEL vs. ABT Stock
We think that Quidel (NASDAQ:QDEL) currently is a better pick compared to Abbott (NYSE:ABT). QDEL stock trades at about 3.1x trailing revenues, compared to around 5.6x for Abbott. Does this gap in Quidel’s valuation make sense? To some extent it does, if we look at the future outlook. While both the companies have benefited in the pandemic with a massive demand for Covid-19 testing, QDEL stock is being weighed down due to the concerns over declining sales volume for Covid-19 testing, given the rise in the vaccination rate. However, there is more to the comparison. Let’s step back to look at the fuller picture of the relative valuation of the two companies by looking at historical revenue growth as well as operating income and operating margin growth. Our dashboard Abbott vs. Quidel: ABT stock looks overvalued compared to QDEL stock has more details on this. Parts of the analysis are summarized below.
1. Revenue Growth
Between 2017 and 2020, Abbott’s revenues grew by about 26%, from around $27.4 billion to $34.6 billion, primarily led by a strong growth in diagnostics business, which saw its revenue nearly double to $10.8 billion in 2020, compared to $5.6 billion in 2017. Our Abbott Revenues dashboard summarizes the segment-wise breakup of the company’s revenues. Looking at Quidel, total revenue grew a large 6x from $0.3 billion to $1.7 billion over the same period. Much of this growth came in 2020, due to a very high demand for Covid-19 testing. Over the last twelve months, Abbott has seen revenues grow by 16.3%, much lower than the figure of 211% for Quidel.
2. Operating Income
Abbott’s operating income grew 3.4x from $1.6 billion in 2017 to $5.4 billion in 2020, led by revenue growth as well as a large expansion of operating margins from 5.7% to 15.5% over the same period. The margin expansion was primarily driven by slower growth in operating expenses, primarily SG&A, compared to the revenue growth. Looking at Quidel, the operating income grew over 11x from less than $0.1 billion in 2017 to $1.1 billion in 2020, driven by both revenue growth as well as margin expansion. Quidel’s operating margins surged to 64.4% in 2020, compared to just 9.8% in 2017. Over the last twelve months, the operating margin for Abbott grew by 400 bps, compared to 4650 bps Quidel.
The Net of It All
Although Abbott’s revenue base is much larger, Quidel’s revenue as well as margin growth has comparatively been much higher. Although both the companies are benefiting from increased Covid-19 testing, QDEL stock has been weighed down over investors concerns of future sales growth. To some extent this is justified, given that Abbott is far more diversified and when Covid-19 testing declines, Abbott’s other business segments, primarily medical devices, will drive the revenue growth.
But does that mean there is no scope for Quidel’s business? We don’t think so. There is no denying that Quidel will see a decline in sales, as the Covid-19 crisis winds down, but some of the demand for testing will remain over the next few years. There may be negative test report requirement for in-person activities, possibly schools, and for travel. Quidel’s QuickVue, an at-home Covid-19 test, has already secured the emergency use authorization from the U.S. FDA, and it can address this demand. The company also has QuickVue SARS antigen test to meet the requirement of testing for asymptomatic people.
Overall, the company’s revenues and earnings will surely be better than what they were in 2019. Going by consensus estimates, revenues of $1.25 billion in 2022 (marks a 25% y-o-y decline), is still 2.5x that of the 2019 figure. Looking at the bottom line, its adjusted EPS estimate of $10.55 in 2022 is 3.5x the $2.97 figure seen in 2019. But, at the current levels of $121, QDEL stock is up only 63% from the levels of around $75 seen toward the end of 2019.
Now, despite a stellar revenue and margins growth over the recent past, QDEL stock has lost more than half of its value in a matter of months (from over $250 levels in Feb 2021 to $120 now), and we think after this large correction, the difference in P/S multiple of 5.6x for Abbott versus 3.1x for Quidel will likely narrow going forward in favor of the less expensive QDEL stock.
While Quidel appears to be a better investment than Abbott, it is helpful to see how its peers stack up. Abbott Stock Comparison With Peers summarizes how Abbott compares against peers on metrics that matter. You can find more such useful comparisons on Peer Comparisons.