Abbott Laboratories [NYSE: ABT] has been getting lots of attention lately, especially after the company’s share price hit a new 52-week high of $82.86.
The increase came after Abbott announced its 382nd consecutive dividend and posted a positive earnings outlook. The company has been increasing its dividend consistently for each of the last 47 years. Currently, Abbott pays a $1.28 (1.68%) dividend.
Abbott Labs [NYSE: ABT] also had several other reasons to be hopeful about its future earnings potential, including new products coming out and a strategic partnership.
However, deciding to buy on the swell is a risk. If you buy into this type of news after the pop, you may not see enough of an increase in the share price to make the investment worth your while, especially if you don’t intend to hold on to the stock.
You want to make sure that the company in question is a good fit for your investment portfolio. Let’s take a closer look at Abbott Laboratories.
What Does Abbott Laboratories Do?
Abbott Labs has four segments to its business. The company sells pharmaceutical products and nutritional products as well as diagnostic devices and cardiovascular and neuromodulation products.
This segment includes Abbott’s prescription drugs. The company’s portfolio is very large. Some highlights include gastroenterology products, such as Creon for pancreatic exocrine insufficiency and Duspatal for irritable bowel syndrome, and pain treatmeents like Brufen.
Abbott also makes women’s health products (e.g., Duphaston), influenza vaccines (e.g., Influvac), and migraine treatments (e.g., Sevedol).
Abbott Labs is also the company behind well-known nutrition products. These include: infant formula Similac, children’s PediSure, adult Ensure, and diet/weight management Zone Perfect.
The company also has a large line of diagnostic products.
Abbott makes hematologic and chemistry-based lab systems that are used in everything from diagnosing cancer to analyzing fertility.
It makes point of care systems for analyzing blood (e.g., i-STAT) too, as well as DNA/RNA extraction and testing tools. In addition, Abbott Laboratories has several rapid diagnosis devices.
Cardiovascular and Neuromodulation
Abbot’s cardiology and neuromodulation segment is focused wholly on rhythm management and electrophysiology of the heart and includes structural devices, such as pacemakers.
This segment also contains neuromodulation devices. These are used to manage chronic pain.
Is Abbott Laboratories Stock a Buy?
Abbott Labs [NYSE: ABT] isn’t just an established player in a wide range of health areas. It is also an innovator.
On June 17, 2019, Abbott announced a point of care test called Afinion HbA1c Dx assay. It is the first of its kind to diagnose diabetes and the test takes just three minutes.
The hope is that medical professionals can administer the test in-office to screen for diabetes and provide more insightful care plans.
This new product launch comes after May, when the company introduced an insertable cardiac monitor (ICM) called Confirm Rx, and its recent BRAIN (Brain Research through Advancing Innovative Neurotechnologies) initiative partnership with the National Institutes of Health (NIH).
However, Abbott still comes with risks.
Don’t forget, a large part of Abbott’s business involves patents. The company only has a limited time to make money on a development or device before those protections expire.
It has to be able to do that but developing all these new products has left the company with a large amount of debt – around $19.6 billion.
When you owe that much money, scaling operations, running ad campaigns, and sending out pharma reps to spread the word that its products exist could be limited. Abbott simply can’t afford to be as flexible as some other companies may.
Now, much of this debt comes from recent acquisitions of Alere and St. Jude Medical, but you should know how much is on their books.
Plus, all of these risk factors are on top of the threats that changing government regulations may present as well as any additional expenses Abbott may have to take on that stem from its acquisitions.
In contrast, consider a company like Dexcom [NASDAQ: DXCM].
What Does Dexcom Do?
Dexcom [NASDAQ: DXCM] has a 52-week range from $90.61 to $156.16.
It doesn’t pay a dividend, but consensus estimates put the share price at $160.67 in the next year. That’s an increase of about 6.5%.
In contrast, Abbott has a one-year target estimate of $83.06 – an increase of just over 1% from its current share price.
Plus, Dexcom isn’t drowning in debt. The company has $1.08 billion in debt on its books, but it also has $1.36 billion in cash.
Here’s what you should know about Dexcom.
Should You Invest in Dexcom Stock?
DexCom specializes in devices used for continuous glucose monitoring (CGM). The company launched its first product in 2006.
DexCom’s devices have evolved since then. In 2018, it received approval for DexCom G6 “is the first type of continuous glucose monitoring system permitted by the FDA to be used as part of an integrated system with other compatible medical devices and electronic interfaces,” per the company’s 2018 annual report.
The G6 can integrate with insulin pumps as well as mobile devices such as iPhones or the Apple Watch. DexCom also makes a G5 device and another called DexCom Share which integrates with smart devices.
DexCom [NASDAQ: DXCM] is in a strong position.
Diabetes is a chronic health issue that impacts millions of people and more are being diagnosed all the time. CGM is more convenient and less painful than traditional finger stick testing for monitoring.
It tends to be more accurate as well. DexCom is facing stiff competition from larger competitors, but by specializing in a well-defined niche, it can differentiate itself.
That said, DexCom [NASDAQ: DXCM] has other worries too. For one, it is going to periodically have to incur debt to develop, manufacture, distribute, and actually sell its products.
Plus, many of DexCom’s customers use insurance or government health programs to pay for the company’s devices. If DexCom falls off the list of approved devices in favor of a larger or cheaper competitor, the results could be catastrophic.
Overall, DexCom is forecasted to grow, but by how much is unclear.
Abbott Laboratories vs Dexcom Stock: The Bottom Line
Betting on pharma can be risky. Both Abbott and DexCom could be part of a well-balanced portfolio, but well-balanced is key.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.