Same Industry, Less Money: What Boston Scientific and ResMed Offer That Abbott Laboratories Does Not
In the medical device arena, one giant commands a premium price for slower growth. The question is whether its stability is worth more than a rival’s speed.
A dollar of Abbott Laboratories (ABT)’ operating profit costs 22.7 times, while the same dollar at industry rival Boston Scientific (BSX) costs just 15.5 times. These are two of the largest players in health care equipment, yet the market assigns a significant premium to the one that is currently growing slower. This raises the central question for any investor watching the space: what exactly does Abbott’s premium buy that its cheaper, faster-growing peer does not?
Is Abbott’s Diversified Model the Real Moat?
The case for Abbott’s premium rests on the stability that comes with its sheer scale and diversification. With trailing twelve-month revenue of $45.13 billion, Abbott operates a sprawling portfolio across diagnostics, medical devices, nutrition, and established pharmaceuticals. Management sees this breadth as a key advantage, noting its diagnostic test volumes serve as a “reliable barometer of overall health care activity” and continue to show “strong and stable demand for testing.”
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This diversification provides a buffer. While one division might face challenges, others can carry the weight. For instance, even as the company works through increased “competitive intensity” in its U.S. mitral valve business, its hospital lab testing segment grew 13% in the most recent quarter. This resilience underpins management’s confidence in reaffirming its full-year guidance for comparable sales growth of 6.5% to 7.5% and raising its full-year EPS guidance.
The key numbers side by side today:
| Metric | ABT | BSX | RMD |
|---|---|---|---|
| P/OpInc* | 22.7x | 15.5x | 14.6x |
| LTM OpInc Growth | 8.0% | 26.6% | 18.9% |
| 3Y Avg OpInc Growth | 3.9% | 24.4% | 19.6% |
| LTM Revenue Growth | 6.6% | 17.4% | 10.3% |
| 3Y Avg Revenue Growth | 2.9% | 16.5% | 11.3% |
OpInc = Operating Income, P/OpInc = Price To Operating Income Ratio
And the same comparison exactly a year ago, so you can see which way the mismatch has been moving:
| Metric | ABT | BSX | RMD |
|---|---|---|---|
| P/OpInc* | 30x | 49.1x | 24.6x |
| LTM OpInc Growth | 12.2% | 28.4% | 25.0% |
| 3Y Avg OpInc Growth | -7.0% | 18.9% | 17.9% |
| LTM Revenue Growth | 5.0% | 19.4% | 9.5% |
| 3Y Avg Revenue Growth | -1.5% | 13.1% | 12.4% |
OpInc = Operating Income
The Premium Is Paid in Slower Growth.
The cost of that stability is what an investor gives up by not owning the more focused challenger. In addition to being cheaper, Boston Scientific is growing substantially faster, with revenue expanding 17.4% over the last twelve months compared to 6.6% for Abbott. BSX also delivered a higher operating margin of 19.9% versus Abbott’s 17.1%.
Furthermore, BSX recently signaled its own confidence by raising its forward guidance on earnings per share. Meanwhile, Abbott’s growth story faces hurdles. Its critical continuous glucose monitoring franchise, a key engine, has seen its growth “plateau” to 9.5%, a rate an analyst on its recent call characterized as “only 9.5%.” For investors who prefer to own the entire theme rather than pick a single winner, a broad healthcare ETF like XLV offers exposure to both companies and their peers.
The Choice Turns on a Promised Acceleration.
Ultimately, the justification for Abbott’s valuation hinges on its ability to deliver a significant growth acceleration in the second half of the year. The question of whether Abbott can deliver on its second-half growth promise is now central for investors. Management has a “clear line of sight” to this acceleration, forecasting that the lift will come from four specific areas: nutrition, electrophysiology, core lab, and cancer diagnostics.
The tradeoff is clear. An investor can pay a premium for Abbott’s diversified model and the promise of a second-half rebound or opt for the more straightforward and currently faster growth of Boston Scientific at a lower price. The most direct test of Abbott’s thesis will be its ability to meet its full-year comparable sales growth target of 6.5% to 7.5%. The next earnings report will show whether that acceleration is truly taking hold or if the premium is buying stability without the growth.
Want To Stack Them Up Side By Side Yourself?
You can line Abbott Laboratories and Boston Scientific and ResMed up directly on the Abbott Laboratories peer comparison, weigh them on valuation, growth, margins, and returns, and swap in any other Health Care Equipment names you hold.
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