Will Abbott Stock Rise After Its Q3 Results?

Abbott (NYSE:ABT) is scheduled to report its Q3 2021 results on Wednesday, October 20, and we expect it to be slightly above the consensus estimates, driven by a rise in demand for medical devices as well as its established pharmaceuticals business. A rise in Covid-19 cases in Q3 due to the spread of the delta variant likely aided Covid-19 testing demand for the company. We expect the company to navigate well based on these trends over the latest quarter, and ABT stock to rise in the near term. Trefis’ forecast indicates that Abbott’s valuation is $129 per share, which is 10% higher than the current market price of around $117. Our interactive dashboard analysis on Abbott’s Pre-Earnings has additional details.

(1) Revenues expected to be in-line with the consensus estimates

Trefis estimates Abbott’s Q3 2021 revenues to be around $9.58 billion, largely in-line with the $9.56 billion consensus estimate. With a rise in overall vaccination rates across the globe, the healthcare institutions now have more resources to address the surgeries that were postponed earlier, implying a rebound for Abbott’s medical devices business. In fact, Abbott’s medical devices sales surged 51% in Q2 this year.

Looking at the company’s diagnostics business, the sales are expected to moderate in Q3, after seeing a massive 90% rise in first half of this year. This can be attributed to high demand for Covid-19 testing. However, now that the Covid-19 vaccination rate is on a rise, the overall demand for testing is expected to come down over the coming quarters, and it will impact the overall sales growth of the company’s diagnostics business in the quarters to come. Our dashboard on Abbott Revenues offers more details on the company’s segments.

2) EPS likely to top the consensus estimates

Abbott’s Q3 2021 adjusted earnings per share (EPS) is expected to be $0.96 per Trefis analysis, just two cents above the consensus estimate of $0.94. Abbott’s adjusted net income of $2.1 billion in Q2 2021 reflected a large 2x growth from its $1.0 Bil figure in the prior-year quarter. This can be attributed to higher revenues and over 400 bps rise in operating margins. The company’s operating expenses, including R&D and SG&A grew at a slower pace compared to the revenue growth. This trend is expected to continue in Q3 as well, bolstering the overall earnings growth. For the full-year, we expect the adjusted EPS to be higher at $4.48 compared to $3.67 in 2020.

(3) Stock price estimate 11% higher than the current market price

Going by our Abbott’s Valuation, with an EPS estimate of around $4.48 and a P/E multiple of around 29x in 2021, this translates into a price of $129, which is 10% above the current market price of around $117. The 29x P/E multiple compares with levels of 30x seen as recently as late 2020, implying there is some more room for growth for ABT stock.

Note: P/E Multiples are based on Share Price at the end of the year and reported (or expected) Adjusted Earnings for the full year

While ABT stock may be undervalued, 2020 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.