What’s Driving Our $81 Price Estimate For Abbott Laboratories?

Abbott Labs’ (NYSE:ABT) stock price has gained over 8% year-to-date. This is much higher than the overall healthcare sector returns of close to 4%. The stock price seems to have some more room for growth, in our view. This note details Trefis’ forecasts for Abbott for 2019. You can view our interactive dashboard analysis on ~ What’s Driving Our $81 Price Estimate For Abbott Laboratories? ~ for more details on the expected performance of the company. In addition, you can see more of our data for healthcare companies here.

What Are The Key Sources of Abbott’s Revenue, And How Have They Trended In The Recent Quarters?

• Abbott Labs is a diversified healthcare conglomerate with a global presence. The firm operates in four main segments: Nutritionals, Diagnostics, Medical Devices, and Established Pharmaceutical Products.
• The Nutritional segment includes pediatric, adult, healthy living and sports nutrition products, such as infant formulas, snack bars, and meal replacement shakes. The segment revenues of $7.23 billion in 2018 accounted for 24% of the company’s total sales.
• The Diagnostics segment includes systems and tests used for screening for drugs of abuse, cancer, therapeutic drug monitoring, fertility, physiological diseases, and infectious diseases such as hepatitis and HIV. The segment revenues of $7.50 billion in 2018 contributed 25% to the company’s total revenues.
• The Medical Devices segment includes minimally invasive medical devices for heart diseases, strokes, carotid artery diseases, and other serious vascular conditions. The segment generated revenues of $11.43 billion in 2018, representing 37% of the company’s total sales.
• The Generic Pharmaceutical Products segment includes a broad line of generic drugs that are manufactured worldwide and sold outside the U.S. The segment sales of $4.42 billion in 2018 accounted for 14% of the company’s total revenues.
• Total Revenues for Abbott have largely trended higher over recent quarters, growing from $7.39 billion in Q1 2018 to $7.54 million in Q1 2019. The growth can primarily be attributed to higher sales of its medical devices.

How Does The Revenue Growth of Abbott Compare To Its Peers?

• Abbott’s revenues have declined at an average of -0.1% from $7.58 billion in Q4 2017 to $7.54 billion in Q1 2019. Abbott’s performance in the recent quarters has been below its peers.
• Intuitive Surgical’s average revenue growth of 2.1% over the past 5 quarters has been higher than some of the other healthcare companies.
• Boston Scientific’s revenues have grown at an average of 0.8% from $2.41 billion in Q4 2017 to $2.56 billion in Q1 2019.
• Medtronic’s revenue have grown at an average rate of 1.6% from $7.05 billion in Q2 fiscal 2018 to $7.54 billion in Q3 fiscal 2019.

How Much Can Abbott’s Top Line Grow In 2019?

• Abbott’s revenues will likely grow in mid-single-digits to $32.24 billion in 2019.
• Established Pharmaceutical Products will likely see 6% growth to $4.69 billion in 2019, led by continued expansion in key emerging markets.
• Nutritionals could grow 3% to $7.45 billion in 2019, led by its established brands, as well as some of the new launches.
• Diagnostics revenues could grow 5% to $7.87 billion in 2019, led by higher demand for Alinity, which is a fully integrated and automated diagnostics analyzer.
• Medical Devices revenues will likely grow 7% to $12.23 billion in 2019, primarily led by increased adoption of its HeartMate device. The Medical devices segment has seen steady growth in the recent past, led by higher electrophysiology, structural heart, and Freestyle Libre sales, and this trend will likely continue in the near term. Electrophysiology growth will likely be led by Confirm RxTM Insertable Cardiac Monitor (ICM), while structural heart should continue to benefit from Amplatzer (TM) Occluder and higher sales of MitraClip, which was recently approved by the U.S. FDA for the treatment of heart failure in patients with clinically significant secondary mitral regurgitation.

How Much Can Abbott’s Earnings Grow Based On The Expected Revenue Trends Above?

• Abbott’s full year 2019 earnings will likely be $3.21 per share, reflecting an 11% growth over 2018.
• Consensus earnings estimate ~ 3.22.
• Earnings growth can be attributed to higher revenues, lower share count, and a slight improvement in margins, as guided by the company.

What Is Abbott’s Fair Value Share Price Estimate Based On the Above?

• Our price estimate of $81 for Abbott is based on a 25x price to earnings multiple, and earnings of $3.21 per share in 2019.
• The multiple for Abbott is close to that of some of its peers, including Boston Scientific, and Medtronic, but below Intuitive Surgical. The multiple for Intuitive Surgical is higher than several other healthcare companies, given it could garner strong growth in the long run with its robotic surgical devices.

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