Is Abbott Labs A "Strong Buy" After Earnings?

July 27, 2022 at 04:46 AM EDT

Leading healthcare company Abbott Laboratories (ABT) reported strong second-quarter results. And given the company is well-positioned to capitalize on its diverse business and recent FDA approvals, is it wise to buy the stock now? Let’s find out...

Abbott Laboratories (ABT) and its subsidiaries discover, develop, manufacture, and market health care products worldwide. It operates in four segments: Established Pharmaceutical Products; Diagnostic Products; Nutritional Products; and Medical Devices.

Last week, ABT announced its second-quarter results. EPS and revenue for the quarter surpassed analysts' projections. Furthermore, it raised its full-year 2022 earnings per share projection. The company expects GAAP diluted EPS of at least $3.50 and adjusted diluted EPS of at least $4.90 for the entire year. Its projection includes $6.1 billion in COVID-19 testing-related sales, including $5.6 billion through June 2022 and $500 million in sales over the next four months.

This month, ABT announced Health Canada's approval of NeuroSphere Virtual Clinic, the first remote programming technology of its kind in Canada that is compatible with Abbott's array of neuromodulation products. By interacting with their doctor via secure in-app video chat and an integrated remote programming capability, Abbott's NeuroSphere Virtual Clinic provides patients the freedom and convenience of getting care anywhere.

Also, this month, the company reported that the FDA had granted Breakthrough Device Designation to its deep brain stimulation (DBS) device for research into treatment-resistant depression (TRD), a kind of severe depressive illness (MDD).

Here's what could shape ABT's performance in the near term:

Robust Financials

During the second quarter ended June 30, 2022, ABT's net sales increased 10.1% year-over-year to $11.26 billion. Its operating income grew 70.6% from the prior-year quarter to $2.38 billion. The company’s net income surged 20.2% from the year-ago value to $2.02 billion. Its EPS amounted to $1.14.

Discounted Valuation

In terms of trailing12-month Price/Cash Flow, the stock is currently trading at 19.18x, 1.8% lower than the industry average of 19.52x. Also, its trailing-12-month EV/EBIT of 19.15x is 8.2% lower than the industry average of 20.85x. Moreover, ABT's trailing-12-month Price/Sales of 4.22x is 10.1% lower than the industry average of 4.70x.

Consensus Rating and Price Target Indicate Potential Upside

Of the 12 Wall Street analysts that rated ABT, ten rated it Buy. The 12-month median price target of $120.58 indicates a 10.5% potential upside. The price targets range from a low of $95.00 to a high of $132.00.

POWR Ratings Reflect Solid Prospects

ABT has an overall grade of B, equating to a Buy rating in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. ABT has a B Stability and Sentiment. The stock beta of 0.74 is consistent with the Stability grade. Consensus ratings and price targets justify the Sentiment grade.

Of the 146 stocks in the D-rated Medical – Devices & Equipment industry, ABT is ranked #6.

Beyond what I stated above, we have graded ABT for Value, Growth, and Momentum. Get all ABT ratings here.

Bottom Line

ABT posted strong top and bottom-line growth in the second quarter of fiscal 2022. Furthermore, the company appears well-positioned to gain its diverse product line. Given the company's strong financials, favorable consensus price targets and ratings, and profits growth projections, we believe it may be a good time to buy the stock.

How Does Abbott Laboratories (ABT) Stack Up Against its Peers?

ABT has an overall POWR Rating of B, which equates to a Buy rating. Check out these other stocks within the same industry with A (Strong Buy) ratings: Fonar Corporation (FONR), Olympus Corp. ADR (OCPNY), and Electromed Inc. (ELMD).

ABT shares were unchanged in premarket trading Wednesday. Year-to-date, ABT has declined -21.56%, versus a -17.09% rise in the benchmark S&P 500 index during the same period.

About the Author: Pragya Pandey

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.

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