Abbott: A Second Half Story

03/05/2014 11:00 am EST

Focus: HEALTHCARE

Jim Jubak

Founder and Editor, JubakPicks.com

This company may face some obstacles and tough year-to-year comparison in the first half of 2014, writes MoneyShow's Jim Jubak, however, he doesn't think any weakness will be big enough to warrant selling, then rebuying.

Fourth quarter earnings and guidance for 2014, announced on January 22, make it clear that Abbott Laboratories (ABT) is a second half story for 2014.

(Abbott Laboratories is a member of my Jubak's Picks portfolio.)

For the quarter, Abbott reported earnings of 58 cents a share, matching Wall Street estimates. Revenue climbed just 0.4% year-over-year to $5.66 billion, less than the $5.72 billion analysts had projected. A stronger dollar worked against Abbott in the quarter, but even taking out currency effects, worldwide sales still grew by just 3.3%.

For 2014, the company told Wall Street to expect $2.21 to $2.26 a share. That's slightly ahead of the $2.21 consensus projection by analysts.

But that earnings guidance isn't spread evenly over 2014. In the first quarter, for example, Abbott faces tough year-to-year comparisons with the first quarter of 2013, and what are projected as lagging sales and higher marketing expenses for the period. As Abbott's fourth quarter earnings report made clear, the company's infant formula sales still haven't completely recovered from product problems in Saudi Arabia, Vietnam, and, most importantly, China. Sales of pediatric products outside the United States fell by 3% in the quarter. (Growth in the third quarter hadn't been particularly robust at 3%.) The first quarter, the company noted, will also see higher expenses related to product recalls in those markets and higher marketing expenses, as Abbott spends to rebuild market share and growth. Add a very negative currency effect, from dollar strength in the first quarter, and the year is likely to begin with disappointingly sluggish growth.

I don't think any weakness in the stock in the first quarter is likely to be big enough to make selling and then rebuying an attractive strategy. But if you've been looking to add to a position in Abbott (or to start one), the days or weeks after the first quarter earnings are reported on April 16 might be your best opportunity for 2014.

As of March 4, I'm raising my target price for Abbott to $46 by October, from my current target of $40 a share.

Full disclosure: I don't own shares of any of the companies mentioned in this post in my personal portfolio. When in 2010 I started the mutual fund I manage, Jubak Global Equity Fund, I liquidated all my individual stock holdings and put the money into the fund. The fund may or may not now own positions in any stock mentioned in this post. The fund did not own shares of Abbott Laboratories as of the end of December. For a full list of the stocks in the fund see the fund's portfolio here.

Related Articles on HEALTHCARE