Embattled Abbott Labs comes through with a strong quarter, buyback announcement

Medical device maker Abbott Laboratories on Wednesday delivered better-than-expected quarterly results and upped its earnings guidance for the third straight quarter. Shares rose more than 1%, shaking off an initially subdued reaction. Revenue in the three months ended Sept. 30 rose 4.9% to $10.64 billion, topping estimates of $10.55 billion, according to data provider LSEG. Organic sales, which exclude Covid testing, were up 8.2% from the year-ago period. It’s unclear whether analyst estimates are comparable. Adjusted earnings per share (EPS) of $1.21 beat LSEG expectations by a penny and increased 6.14% on an annual basis. ABT YTD mountain Abbott Labs’ year-to-date stock performance. Abbott shares are extending their period of outperformance versus the market and health-care peers. The stock entered Wednesday’s session up a little more than 10% since the July 26 close — after the closing bell that day, the company was ordered to pay $495 million in damages in a court case over its premature infant formula, which has been a major overhang on the stock since mid-March. That advance is ahead of the S & P 500 , a closely followed health-care exchange-traded fund , which gained 6.5% and 1.9%, respectively, over the same stretch. Bottom line In its third quarter, Abbott Labs demonstrated why we wanted to stick with the stock in the face of legal battles that emerged earlier this year and spooked investors. We’re reiterating our price target of $130 and 2 rating, meaning we’d wait for a pullback before adding to our position. At its lows of 2024 in July, Abbott’s market cap stood at $174.1 billion, roughly $32 billion below where it was in March before its competitor in the premature infant formula market lost a court case and put Abbott’s own case load in the spotlight. We battled the stock in the months that followed, arguing the selling was overblown, especially considering the scientific community backed Abbott’s view that the formulas were medically necessary for premature infants and did not cause an intestinal illness commonly abbreviated as NEC. A trio of U.S. agencies earlier this month threw more support behind use of the formulas . At its highs of Wednesday’s session, Abbott had clawed back all of its market cap losses since March 14. “Abbott really came through,” Jim Cramer said Wednesday. “There’s just a lot to like with the Abbott quarter.” Commentary The place to start is Abbott’s medical devices segment, which saw a roughly 12% increase in revenues to a better-than-expected $4.75 billion, as seen in the chart below. On an organic basis, which strips out the impact of foreign exchange fluctuations and divestitures, medical device sales rose 13.3%. It’s nice when a company’s largest segment by sales is the one with the fastest growth rate — and that’s the case with Abbott. FreeStyle Libre, a continuous glucose monitor (CGM) for people with diabetes, continued its impressive growth in the quarter, with organic sales up 21%, a slight acceleration from the prior three-month period. While Abbott has benefited from the struggles of CGM competitor Dexcom , CEO Robert Ford maintained an upbeat view on the market in the near and long terms. “This is a mass market opportunity that we have,” he said, noting there’s about 10 million CGM users worldwide right now but over 100 million diabetics in developed countries. Abbott and its peers are increasingly targeting CGMs to non-diabetics, hoping that health-conscious people would want to use biosensors to learn about their body’s response to factors like food, stress and exercise. Abbott launched its over-the-counter CGM called Lingo in the U.S. in early September , and Ford said the product is “off to a very good start.” People can purchase a one-sensor pack for $49, two for $89 or six for $249. The two-sensor pack is the most popular version, he said. The sensors last about two weeks, and Ford said he was positively surprised by the reorder rates so far. Abbott has targeted $10 billion in sales of CGMs by 2028, and Lingo represents a “great opportunity” to add to that goal over time, Ford said. Another highlight: Abbott Labs announced its board authorized a new $7 billion share purchase program. Its prior authorization from 2021 was getting low, Ford said. In the third quarter, Abbott bought back $750 million worth of stock, with Ford saying executives believed there was a disconnect between the stock’s valuation and the company’s business fundamentals. Indeed, Abbott usually prioritizes investing in its product pipeline over share repurchases, so the fact that management stepped up its buyback program really shows how they feel about the current stock price. Abbott’s nutrition business — home to brands such as Ensure protein powder and PediaSure drinks for kids — was a weak spot, just as it was in the second quarter. Sales were down about 0.3% year over year to $2.07 billion, short of the $2.17 billion expected by analysts, according to FactSet. On an organic basis, revenue was up 3.4% in the segment. Ford said the international pediatric business was the biggest drag on nutrition in the quarter, blaming that on Abbott’s own “commercial execution” early in the quarter. The company quickly recognized the softness and took steps to fix it, Ford said, including personnel changes followed by inventory adjustments to distributors. Ford said early indications show that Abbott took the right corrective actions and that growth in that division and the segment overall should improve in the current quarter. On the lawsuits, specifically, Ford once again issued a strong defense of the premature infant formula. He said the statement from the three U.S. health agencies — the Food and Drug Administration, Centers for Disease Control and Prevention, and National Institutes of Health — “says a lot.” “It was a very strong statement,” Ford said, though he noted that the judge in an ongoing trial in Missouri has yet to allow it to be submitted as evidence in the case. He said he expects that in future cases, the statement and an accompanying report on NEC and formulas will be included as evidence for juries to consider. Abbott’s recent stock performance suggests investors are getting more comfortable with the litigation risk, but it’s still too early to declare complete victory. That’s why we’re generally holding off on adding to our position. Nevertheless, there’s little doubt about the strength of Abbott’s underlying fundamentals. In due time that should occupy more and more of the spotlight. Abbott Laboratories Why we own it : Abbott is a high-quality medtech company growing at a fast clip. The stock has been dealing with two overhangs: falling Covid testing sales and concerns that GLP-1 adoption will disrupt its leading continuous glucose monitor. As Abbott’s organic sales growth continues to shine, the market will realize both concerns are overblown. Competitors : Dexcom and Edwards Lifesciences Weight in Club portfolio : 2.89% Most recent buy : 5/29/2024 Initiated : Jan. 29, 2024 Guidance Abbott Labs now projects adjusted EPS in the range of $4.64 to $4.70, which at the midpoint is up a penny versus its prior guidance of $4.61 to $4.71. It’s the third consecutive quarter that Abbott has upped the middle of its EPS forecast. The company reiterated its full-year organic sales growth outlook of 9.5% to 10%. (Jim Cramer’s Charitable Trust is long ABT. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

View Article Origin Here