What Is Driving Growth For Abbott Stock?

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ABT: Abbott Laboratories logo
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Abbott Laboratories

After a 10% fall year-to-date, at the current levels, Abbott stock (NYSE: ABT) has room for growth, in our view. ABT stock fell from $110 in early January to $99 now. The YTD -10% return for ABT marks an underperformance with the broader S&P500 index, up 4%. The recent fall of ABT stock can partly be attributed to the ongoing investigation by the SEC and the FTC for Abbott’s baby formula products.

Looking at a slightly longer term, ABT stock is up 37% from levels seen in late 2018, compared to a 60% rise in the broader S&P500 index. This 37% rise for ABT can be attributed to 1.  Abbott’s Revenue, which grew a solid 43% to $44 billion over the last twelve months, compared to $31 billion in 2018, 2. a 1.3% fall in its total shares outstanding to 1.8 billion currently, partly offset by 3. the company’s P/S ratio, which fell 5% to 4.0x trailing revenues, from 4.2x in 2018. Our dashboard – Why Abbott (ABT) Stock Moved – details the factors behind this move.

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Abbott’s sales rose at an average annual rate of 9.7% to $43.7 billion in 2022, compared to $30.6 billion in 2018. High demand for Covid-19 testing drove Abbott’s sales growth in recent years. However, as the Covid-19 cases have declined over the last year or so, the demand for testing is falling, weighing on Abbott’s diagnostics business. That said, the company’s medical devices and established pharmaceutical sales will likely grow steadily over the coming years. The company expects to garner $2 billion from Covid-19 testing sales in 2023, compared to $8 billion in 2022. However, it expects organic revenue growth to be high single-digits for its other businesses. We forecast the 2023 revenue to be around $40 billion, down 9% y-o-y, and sales to return to normal growth from 2024. Abbott should benefit from its new products, including Eterna – a spinal cord stimulator, and Naviator – a transcatheter aortic valve implantation system.

Of late, Abbott’s stock has been weighed down due to the ongoing investigation of its baby formula products. Abbott encountered problems at the Sturgis plant, with the FDA finding traces of a potentially deadly bacteria. This led to a production halt at the Sturgis plant in Feb 2022, resulting in a wide shortage of baby formula products. [1]

Looking at valuation, ABT stock has room for growth after its recent fall. At its current level of $99, ABT is trading at 22x its forward expected earnings of $4.49 on a per share and adjusted basis, compared to the last three-year average of 24x. Even if we were to look at ABT stock from a P/S perspective, it is currently trading at just 4.0x trailing revenues, compared to the last five-year average of 5.8x. Our Abbott (ABT) Valuation Ratios Comparison has more details. We estimate Abbott’s Valuation to be around $119 per share, about 20% above the current market price of $99.

While ABT stock looks like it can see higher levels, it is helpful to see how Abbott’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

Furthermore, the Covid-19 crisis has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised at how counter-intuitive the stock valuation is for Cintas vs. Merck.

With inflation rising and the Fed raising interest rates, among other factors, ABT stock has fallen 18% in the last twelve months. 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.

What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

 Returns Mar 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
 ABT Return -3% -10% 158%
 S&P 500 Return 0% 3% 77%
 Trefis Multi-Strategy Portfolio -2% 5% 230%

[1] Month-to-date and year-to-date as of 3/17/2023
[2] Cumulative total returns since the end of 2016

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Notes:
  1. Abbott Baby-Formula Business Is Under Investigation By SEC, FTC, Peter Loftus, The Wall Street Journal, Feb 17, 2023 []