Abbott (NYSE: ABT) is scheduled to report its Q2 2022 results on Wednesday, July 20. We expect the company to likely post revenue in line and earnings above the street expectations. A rise in the number of procedures performed will likely aid the company’s medical devices sales, offsetting any decline in the diagnostics business, given that the segment benefited from higher Covid-19 testing in the prior-year quarter. Abbott’s nutritional business will also face headwinds due to the recall of baby formula and production challenges at one of its plants. This, clubbed with rising inflation, may weigh on the company’s gross margins.
Although we expect Abbott to post mixed results in Q2, our forecast indicates that ABT stock is undervalued at its current levels, as discussed below. Our interactive dashboard analysis of Abbott Earnings Preview has additional details.
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(1) Revenues expected to align with the consensus estimates
- Trefis estimates Abbott’s Q2 2022 revenues to be around $10.3 billion, in-line with the consensus estimate.
- The revenue growth will likely be visible for its medical devices, and established pharmaceuticals businesses, while we expect a decline in diagnostics and nutritional segment sales.
- As the Covid-19 cases are declining, the demand for testing is also expected to fall, weighing on Abbott’s diagnostics business.
- The nutritional segment has had a tough start this year, with manufacturing challenges at its Michigan facility impacting the supply and, in turn, sales of baby formula products, weighing on the segment sales in Q2.
- Abbott has recently secured the U.S. FDA approval for its Freestyle Libre 3, and this will help it gain market share and aid the diabetes business sales growth.
- Looking at Q1, the company reported $11.9 billion in sales, up 14% y-o-y, driven by a solid 32% rise in diagnostics sales.
- Our dashboard on Abbott Revenues offers more details on the company’s segments.
2) EPS likely to be above the consensus estimates
- Abbott’s Q2 2022 adjusted earnings per share (EPS) is expected to be $1.16 per Trefis analysis, slightly above the consensus estimate of $1.12.
- Abbott’s adjusted net income of $3.1 billion in Q1 2022 reflected a significant 30% growth from its $2.4 billion figure in the prior-year quarter. This can be attributed to higher revenues as well as net margin expansion.
- The company’s operating expenses, including R&D and SG&A, grew slower than the revenue growth in Q1.
- However, inflationary headwinds and supply chain disruption likely weighed on the company’s net margin expansion in Q2.
- For the full-year 2022, we expect the adjusted EPS to be lower at $4.97, compared to $5.24 in 2021. This can be attributed to an anticipated decline in Covid-19 testing sales.
(3) ABT stock looks undervalued
- We estimate Abbott’s Valuation to be around $141 per share, which is a significant 33% above the current market price of $106.
- At its current levels, ABT stock is trading at a P/E multiple of 21x based on our EPS estimate of $4.97 for 2022, compared to the last three-year average of 24x, implying that ABT stock is attractive from a valuation point of view.
- If the company reports upbeat Q2 results and provides an outlook better than the street estimates, the P/E multiple will likely be revised upward, resulting in higher levels for ABT stock.
Furthermore, 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 Xylem vs. Merck.
With inflation rising and the Fed raising interest rates, among other factors, ABT stock has fallen 22% this year. Can it drop more? See how low Abbott stock can go by comparing its decline in previous market crashes. Here is a performance summary of all stocks in previous market crashes.
|S&P 500 Return||1%||-20%||71%|
|Trefis Multi-Strategy Portfolio||2%||-21%||210%|
 Month-to-date and year-to-date as of 7/14/2022
 Cumulative total returns since the end of 2016