Abbott: New Highs in Healthcare

07/21/2020 5:00 am EST


Jason Clark

Contributing Editor, The Prudent Speculator

Shares of Abbott Labs (ABT) reached all-time highs this past week as the diversified healthcare concern released strong quarterly financial results that beat analyst expectations (earning $0.57 vs. $0.42 per share), observes Jason Clark, value investing specialist and contributing editor to The Prudent Speculator.

Revenue over the three months came in at $7.33 billion, versus the consensus analyst estimate of $6.80 billion. Despite the negative impact of the COVID-19 pandemic, three of ABT’s four segments achieved organic growth in the first half of 2020.

The company realized $615 million of COVID-19 diagnostic-testing-related sales during the quarter, and we were encouraged to hear that procedure volumes had rebounded to approximately 90% of pre-Covid-19 levels in the U.S., reflecting a faster-than-expected recovery.

Management confidently outlined multiple reasons for recovery/sales growth acceleration in the second half of 2020, as well as a positive set-up for 2021.

These include encouraging end-of-June procedure/underlying diagnostic testing trends, robust demand for Abbott’s critical growth-driving products, each set to benefit from incremental tailwinds, a full new product pipeline and increasing incremental COVID-related diagnostic testing revenue.

Abbott CEO Robert B. Ford had the following to say about the company’s recent efforts, “Our diversified business model has proven to be a true strength during this time. We’re a leader in the global COVID-19 testing efforts, we’ve continued to advance our pipeline and, importantly, we saw significant improvements in growth trends throughout the quarter in the business areas that were initially most impacted by the pandemic.”

We continue to believe that Abbott’s cash generation potential remains strong, which can be used to improve the balance sheet, return capital to shareholders and invest in the business. We also like that the company continues to invest heavily in R&D as it focuses on wringing new products out of previous acquisitions.

We expect the upcoming launch of its Freestyle Libre 2 glucose monitoring system, expanded COVID-19 testing and a seemingly strong recovery in China to enable Abbott Labs to realize near-term operational improvements.

All the positives mentioned, we continue to keep a close eye on the shares as the valuation isn’t exactly cheap at face value, though we are comfortable continuing to hold our remaining shares of this high-quality name for the time being as our target price has been hiked to $105.

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