Will Abbott Stock Rise After Its Q4 Results?

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Upside
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Market
141
Trefis
ABT: Abbott Laboratories logo
ABT
Abbott Laboratories

Abbott (NYSE:ABT) is scheduled to report its Q4 2021 results on Wednesday, January 26, and we expect it to be below the consensus estimates. A rise in Covid-19 cases in Q4 due to the spread of the Omicron variant likely aided Covid-19 testing demand for the company, bolstering its diagnostics business.

However, the rise in Covid-19 cases may also have adversely impacted the company’s medical devices revenue growth in Q4. Overall, demand for Covid tests is peaking as therapeutic options for Covid-19 improve and as the virus potentially gets milder. The omicron variant itself apparently has a lower rate of severe disease. As such, the company’s diagnostics revenue are expected to decline over the next few quarters.

While we estimate Abbott’s Q4 results to be slightly below the street estimates, our forecast indicates that Abbott’s valuation is $141 per share, which is 12% higher than the current market price of around $126, implying that there is some room for growth in ABT stock. Our interactive dashboard analysis on Abbott’s Pre-Earnings has additional details.

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

  • Trefis estimates Abbott’s Q4 2021 revenues to be around $10.6 billion, slightly below the $10.7 billion consensus estimate.
  • The revenue growth will likely be visible for its medical devices, nutrition, and established pharmaceuticals businesses, while we expect a decline in diagnostics segment sales.
  • While the rise in Omicron cases may have resulted in higher demand for testing, the overall diagnostics sales are expected to be lower than the prior year quarter, which saw a large 111% y-o-y growth to $4.3 billion.
  • Looking at Q3, the company reported $10.9 billion sales, up 23% y-o-y, driven by strong growth across its segments. Diagnostics sales of $3.9 billion in Q3 reflected a large 48% rise y-o-y.
  • Our dashboard on Abbott Revenues offers more details on the company’s segments.

2) EPS likely to be below the consensus estimates

  • Abbott’s Q4 2021 adjusted earnings per share (EPS) is expected to be $1.19 per Trefis analysis, just two cents below the consensus estimate of $1.21.
  • Abbott’s adjusted net income of $2.5 billion in Q3 2021 reflected a large 43% growth from its $1.8 Bil figure in the prior-year quarter. This can be attributed to higher revenues as well as margin expansion.
  • The company’s operating expenses, including R&D and SG&A grew at a slower pace compared to the revenue growth.
  • However, inflationary headwinds and supply chain constraints likely weighed on the company’s net margin expansion in Q4.
  • For the full-year 2022, we expect the adjusted EPS to be lower at $4.97, compared to an estimated $5.08 in 2021, and $3.67 seen in 2020. This can be attributed to an expected decline in Covid-19 testing sales.

(3) Stock price estimate 12% higher than the current market price

  • Our Abbott’s Valuation of $141 is 12% above the current market price of around $126.
  • This represents a P/EBITDA multiple of under 24 for the company based on Abbott EBITDA for the last twelve months.
  • If Abbott results are below the street estimates, as we anticipate, it may result in a decline in its stock price in the near term, giving investors a better opportunity to enter ABT.
  • That said, there are near term macro risks. With the U.S. Federal Reserve monetary policy-setting meeting coming up on January 26, there are rising concerns of tighter financial conditions that may weigh on the overall markets at large.

While ABT stock may be undervalued, the Covid-19 crisis 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.

What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio that’s beaten the market consistently since the end of 2016.

Returns Jan 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
 ABT Return -12% -12% 224%
 S&P 500 Return -8% -8% 96%
 Trefis MS Portfolio Return -11% -11% 248%

[1] Month-to-date and year-to-date as of 1/24/2022
[2] Cumulative total returns since the end of 2016

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