Abbott Laboratories (ABT) is investing to drive future growth. The company has launched a range of products over the past 18 months that have become meaningful contributors to revenue, asserts David Toung, an analyst with the leading independent research firm, Argus Research.

It is also supporting these products through increased marketing spending and acquiring new growth platforms. Within Diabetes Care, the Freestyle Libre continues perform well following its launch in October 2017.

Freestyle Libre is a wearable, sensor-based continuous blood glucose monitoring system. An advance over other self-monitoring products that does not require finger sticks, the Libre has received CE Mark certification for its next-generation system, which will allow it to be marketed in the EU.

The Libre helped drive revenue in the Diabetes Care segment to $530 million in 4Q18, an increase of 32%. Abbott has expanded production of the Libre in order to meet demand from patients with Type 2 as well as Type 1 diabetes.

Within electrophysiology, sales have been driven by strong demand for cardiac mapping and ablation catheters. Within the structural heart business, sales drivers include the Amplatzer PFO Occluder and the MitraClip, which is used to repair leaky heart valves.

Two recently approved products are also likely to drive growth in 2019: the HeartMate 3 left ventricular assist device, which was approved by the FDA in October 2018; and the TactiCath Contact Force Ablation Catheter, which was approved in January.

Abbott reported 4Q18 results on January 23. Adjusted EPS of $0.81 rose 9.5% from the prior year and matched the consensus estimate. Net sales for the quarter rose to $7.8 billion, up 2.3% as reported and 6.4% on an organic basis.

Abbott has established new guidance for 2019. It expects organic sales growth of 6.5%-7.5%, which excludes the impact of foreign exchange. It also expects adjusted EPS of $3.15-$3.25.  Based on the updated guidance, we are maintaining our 2019 adjusted EPS estimate of $3.22. We are setting a 2020 estimate of $3.65.

ABT shares trade at 19.4-times our 2020 EPS estimate, above the average multiple of 17.6 for our coverage universe of med-tech stocks.

Through increased marketing spending, Abbott is supporting new growth drivers such as the FreeStyle Libre and the Alinity diagnostic system. It is also building new growth platforms by integrating the acquisitions of St. Jude Medical and Alere.

We believe that these factors, along with management’s strong record of execution, merit a premium valuation. We are reiterating our "buy" rating with a revised price target of $90.

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