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Highly Valued Abbot Laboratories Could Move Lower

Wednesday, April 20, 2022 | Thomas Hughes
Highly Valued Abbot Laboratories Could Move Lower

Abbott Laboratories Falls On Better Than Expected Results 

Abbott Laboratories (NYSE: ABT) is not in danger of losing its business but we have some concerns its share price could fall. Not only is it a highly-valued stock compared to peers but its current revenue and earnings are based largely on COVID-19. The core business is still there but COVID-19 testing accounted for 27% of net revenue and those sales are expected to plummet in the coming quarters. Assuming, of course, that COVID testing becomes less of a pressing need but the fact remains, Abbott Laboratories is trading at over 24X its earnings outlook while Medtronic (NYSE: MDT) trades at only 19X its earnings and Johnson & Johnson (NYSE: JNJ) trades at an even deeper discount. 

Abbot Laboratories Falls After Q1 Beat 

Abbott Laboratories had another quarter of strong COVID-19 testing sales but the guidance suggests the company is expecting those sales to fall off. Until then, the revenue of $11.9 billion is up 13.8% over last year and beat the Marketbeat.com consensus by over 800 basis points. The only bad news is that strength was driven by COVID-19 testing sales and was offset by a recall of baby formula. 

On a segment basis, Nutrition sales fell by 7% on a 20% decline in the Pediatric unit. Diagnostic sales surged by 31.7% but that is underpinned by COVID testing. Pharma sales jumped 7% which is good news, the company is moving into emerging markets via generic drugs and it seems to be working. Medical devices grew by 7.4%. Looking at things from an ex-COVID basis, total company sales grew by 3.9% and 7.7% on an FX-neutral basis. 


As for the income, the company is leveraging its business well and managed to improve the operating margin on both a GAAP and adjusted basis. The GAAP EPS grew by 37% and adjusted by 31.1% to hit $1.73 per share and top the consensus estimate by $0.27. The bad news is the company maintained its guidance at the previous level which not only means COVID sales are expected to slow but to slow dramatically and as soon as the current quarter. The silver lining is the market is expecting this decline and there is always the possibility COVID will stick around even longer and drive more sales for the company. 

Dividend King Abbott Laboratories To Raise Payment Again

Abbott Laboratories has been raising its dividend on a consecutive annual basis for 50 years. The only adjustment to that timeline is the spin-off of AbbVie which is itself a dividend for investors and a high-quality dividend growth stock of its own. In that light, we have every expectation the company will increase the payout once again at the end of the fiscal year. Based on the low 35% payout ratio, the healthy balance sheet, and organic growth we see the company increasing the payout for many more years to come. Until then, the stock yields 1.6%. 

The Technical Outlook: Abbott Finds Support 

Abbott Laboratories fell in premarket trading and after the open but quickly found support. The company’s history of dividend payments and outlook for core growth are enough, it seems, to keep the market interested. If the market follows through on this move we see the stock remaining rangebound at current levels or possibly moving higher. If not, support is at the $116 level and may be tested over the next few weeks. 

Highly Valued Abbot Laboratories Could Move Lower

Companies Mentioned in This Article

CompanyMarketRank™Current PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Abbott Laboratories (ABT)
3.4264 of 5 stars
$108.18+1.1%1.74%25.10Moderate Buy$139.64
Medtronic (MDT)
3.519 of 5 stars
$89.63+0.5%3.03%24.03Moderate Buy$121.55
Johnson & Johnson (JNJ)
2.9231 of 5 stars
$177.33+0.2%2.55%23.90Moderate Buy$190.50
Compare These Stocks  Add These Stocks to My Watchlist 

Should you invest $1,000 in Abbott Laboratories right now?

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