Is Abbott Labs Stock a Buy, Sell or Hold?

The degree to which the healthcare paradigm has changed is evident from the fact that nowadays, technology plays a huge factor in healthcare outcomes. Just look at how far diagnostics have come. Now, it has become a vital part of the healthcare market.

Another market corner that has gained rapid prominence is the medical devices segment. These devices are basically implants, machines, or in vitro reagents that can be used to treat patients instead of biological pharmaceuticals. Mechanical treatment instead of a biological one, and in some cases they are absolutely crucial with no alternative, such as screws and rods in spine surgery.

Unsurprisingly, the U.S. is the largest medical device market in the world, accounting for more than 40% of the total medical technology, or medtech, market. The country has also consistently led when it comes to exports vs imports, cementing its status as a hub for medtech innovations.

The U.S. Food and Drug Administration has been instrumental in the growth of MedTech. Just last year, alone the FDA gave approvals to 30 medical devices.

It’s not possible to talk about the U.S. medtech market without mentioning Abbott Laboratories (NYSE:ABT). The company has a portfolio of “life-changing technologies” and spans 160 countries.

From an investor perspective what jumps out from a chart is how the share price has a real history of holding out strong over the long term. Over the past five years, Abbott’s stock has gained close to 50%. Over the past year, the stock is up by about 15%. Yet, the swings higher have not necessarily been other worldly, so there may be room for new investors to ride the bullish train higher over the long haul.

For now, however, the stock is not exactly cheap given that the price sits at 25.25x its forward non-GAAP earnings, stretched by industry standards, and indeed its own five-year average.

So, what does the future hold for Abbott Laboratories and is now the time to buy?

Abbott Laboratories Is a Patent Titan

With almost 48,000 patents, it’s no surprise that Abbott has a contentious legal history as it protects IP but make no mistake about it that patent archive is a powerful asset. Last year alone, Abbott reached an agreement with DexCom to settle all patent disputes related to its glucose monitoring devices. This was an end to a longstanding quibble over patents.

While patents have been lucrative the mushrooming pipeline has been the bread and butter of the firm, and offset the headwinds from China and the stronger greenback.

One boon for Abbott financials has been glucose monitoring devices, largely driven by FreeStyle Libre continuous glucose monitor. While Abbott faces supply issues for FreeStyle Libre (basically not pumping them fast enough as the market demand dictates), the company is expected to make up for it once one of its manufacturing sites is operating.

As sedentary lifestyles increase the chance of diabetes, glucose testing instruments appear to have no ceiling it seems.

Headline Figures Hide Stronger Financials

Abbott last reported its fourth quarterly and fiscal year 2024 results and the numbers were generally pretty good with the top line inflating by 7% from the prior year’s period to $10.97 billion.

On a side note, it can’t be overlooked that Abbott does not consider this growth to be necessarily representative of how good things actually are under the hood. The organic growth metrics, minus the foreign exchange impact and the discontinuation of its nutrition business’ ZonePerfect product line, mean that it actually grew almost 9% organically.

If we go one step further and eliminate the impact of COVID-19 testing-related sales, this growth turns into double-digit gains eclipsing 10% annually. Regardless of which metrics we consider, Abbott’s medical devices business is the largest contributor to the top line.

The bottom line was also buoyed up by the healthy sales report, and came in at $1.34 per share on a non-GAAP basis, 13% better than the prior year’s equivalent period. Disappointingly, both the top and bottom-line figures for the quarter missed Wall Street analyst estimates.

As for the full-year results, Abbott’s organic revenue grew by almost 5% from the prior year, while the bottom line also posted a similar growth figure, coming in at $4.67 per share. The healthcare giant’s growth had been expected slow. Abbott did report the upper end of the initial guidance ranges for both organic sales growth and adjusted earnings per share.

It’s good to know that the company is seeking new growth opportunities, reporting that there are over 15 new growth opportunities in its R&D pipeline. For the current year, the company is expecting a little bit of acceleration in organic sales growth to be in the range of 7.5% to 8.5%, while full-year adjusted EPS is set to show a double-digit growth rate.