Abbott Laboratories (NYSE: ABT) is a tale of two stories. The first is its recovery from the COVID-19 boost and bubble. The second is the underlying core business, which is as strong as ever.
The company is "shrinking" due to the COVID-19-related testing and sales decline. The organic business is growing by double digits, and the company is guiding it higher. Abbott Laboratories stock remains one of the healthiest investments in the healthcare space, and its shares are ready to begin rebounding. Headline growth may not return until the first quarter of next year, but it's back in the forecast.
"We're achieving strong growth in our underlying base business," said Robert B. Ford, Abbott's chairman and chief executive officer. "We expect our highly productive pipeline to sustain the momentum we're building this year and position us well for growth in the future."
Abbott Laboratories Outperforms in Q2
Abbott Laboratories had a great Q2 quarter despite the impact of COVID-19 testing sales on the top and bottom lines. The company reported $10 billion in sales, a decline of 11.4% compared to last year, including the impacts of COVID-19. Revenue is 290 basis points better than expected and up 25% compared to 2019. Sales are up 22% compared to 2019 on an ex-COVID-19 basis; organic sales are up 11.5% this quarter due to strength in all segments except diagnostic.
Medical devices led the group with a gain of 13.5%. Device sales are driven by the resumption of elective medical procedures and are expected to remain strong across the industry. Nutrition posted the second most substantial gain at 6.3%, followed by a 5.2% increase in established pharmaceuticals. Diagnostics, which includes COVID-19 testing, fell by 46% on a greater-than-50% decline in COVID-19 sales.
The margin news is also good. The company's adjusted $1.08 in earnings is down compared to last year but three cents better than expected, or 285 basis points, and aligned with the top-line strength. The only bad news in the report is that GAAP earnings were guided lower by three cents to a low end of $3.02. The company also expects organic sales strength to persist and offset the COVID weakness. Among the drivers of organic strength are new products and expanded coverage of existing products.
The Analysts' Sentiment is at Bottom
The trend in analysts' sentiment is mixed for 2023 but ultimately supportive of the price action. The 16 with current ratings have the stock pegged at "moderate buy" with a price target about 12% above the recent action.
The price target is down compared to last year, last quarter and last month, but the decline has slowed dramatically and may reverse course now that Q2 results are in. In this scenario, the stock price is also at the bottom and ready to move higher with the right catalyst.
Institutions have bought on balance for the last year and support the market. Their activity ramped up in Q1 and Q2 2023, coincident with a bottom in the action. If this trend continues, the stock will have nowhere to go but up. As it is, the institutions own about 73% of this 1.9% yielding distribution compounder.
The chart shows a bottom in price action and a market ready to move higher. The post-release action has the price up marginally but confirms support at a critical level. Assuming the market follows through on this signal, the stock price should rise to $109.50, where it may gain momentum. The critical resistance is near $115, and a move above that would be bullish.
