Medical device maker Abbott Laboratories on Wednesday delivered better-than-expected quarterly results and raised its profit forecasts for the third consecutive 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, beating estimates of $10.55 billion, according to data provider LSEG. Organic sales, which exclude Covid testing, increased 8.2% from the same period a year earlier. It's unclear whether analyst estimates are comparable. Adjusted earnings per share (EPS) of $1.21 beat LSEG's expectations by a penny and rose 6.14% year over year. ABT YTD mountain Abbott Labs stock performance so far this year. Abbott stock is extending its period of outperformance against the market and its healthcare peers. Shares entered Wednesday's session up just over 10% from 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 baby formula, which has been a major stock glut since mid-March. That gain is ahead of the S&P 500, a closely watched healthcare exchange-traded fund, which gained 6.5% and 1.9%, respectively, over the same stretch. Conclusion In its third quarter, Abbott Labs demonstrated why we wanted to stick with the stock in the face of legal battles that erupted earlier this year and spooked investors. We are reiterating our $130 price target and 2 rating, meaning we would wait for a pullback before adding to our position. In July, at its 2024 lows, Abbott's market capitalization stood at $174.1 billion, about $32 billion less than in March before its competitor in the premature baby formula market lost a court case and put Abbott's own caseload in the spotlight. We fought the stock in the following months, arguing that the sale was overblown, especially considering that the scientific community supported Abbott's view that the formulas were medically necessary for premature babies and did not cause an intestinal disease commonly abbreviated as NEC. A trio of US agencies earlier this month provided further support for the use of the formulas. At its Wednesday session highs, Abbott had recovered all of its market cap losses since March 14. “Abbott really came through,” Jim Cramer said Wednesday. “There are a lot of things I like about the Abbott neighborhood.” Commentary The place to start is Abbott's medical devices segment, which saw a roughly 12% increase in revenue to a better-than-expected $4.75 billion, as seen in the chart below. On an organic basis, excluding the impact of currency fluctuations and divestitures, medical device sales increased 13.3%. It's nice when a company's largest sales segment is the one with the fastest growth rate, and that's the case for Abbott. FreeStyle Libre, a continuous glucose monitor (CGM) for people with diabetes, continued its impressive growth in the quarter, with organic sales increasing 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 optimistic view on the market in the short and long term. “This is a massive market opportunity we have,” he said, noting that there are currently about 10 million CGM users worldwide, but more than 100 million diabetics in developed countries. Abbott and his peers are increasingly targeting CGMs at non-diabetics, hoping that health-conscious people will want to use biosensors to learn their body's response to factors such as food, stress and exercise. Abbott launched its over-the-counter CGM called Lingo in the US in early September, and Ford said the product is “off to a very good start.” People can purchase a pack of one sensor for $49, two for $89, or six for $249. The two-sensor package is the most popular version, he said. The sensors last about two weeks and Ford said it was positively surprised by the reorder rates so far. Abbott has set a goal of $10 billion in CGM sales by 2028, and Lingo represents a “huge opportunity” to increase that goal over time, Ford said. Another highlight: Abbott Labs announced that its board of directors authorized a new $7 billion stock purchase program. Its preclearance starting in 2021 was running out, Ford said. In the third quarter, Abbott bought back $750 million worth of stock, and Ford said executives believed there was a disconnect between the stock's valuation and the company's business fundamentals. In fact, Abbott often prioritizes investing in its product portfolio over buying back shares, so the fact that management has stepped up its buyback program really shows how they feel about the current share price. Abbott's nutrition business, home to brands such as Ensure protein powder and PediaSure children's drinks, was a weak point, as it was in the second quarter. Sales fell about 0.3% year over year to $2.07 billion, below the $2.17 billion expected by analysts, according to FactSet. Organically, revenue increased 3.4% in the segment. Ford said the international pediatric business was the biggest drag on nutrition in the quarter, blaming it on Abbott's own “business execution” early in the quarter. The company quickly recognized the weakness and took steps to address it, Ford said, including personnel changes followed by inventory adjustments to dealers. Ford said early indications show Abbott took the right corrective actions and that growth in that division and the segment overall should improve in the current quarter. In the lawsuits, specifically, Ford again issued a strong defense of premature baby formula. He said the statement from the three U.S. health agencies — the Food and Drug Administration, the Centers for Disease Control and Prevention and the National Institutes of Health — “speaks volumes.” “It was a very strong statement,” Ford said, although he noted that the judge in an ongoing trial in Missouri has not yet allowed it to be introduced as evidence in the case. He said he hopes that in future cases, the statement and an accompanying report on NEC and formulas will be included as evidence for jurors to consider. Abbott's recent stock performance suggests investors are becoming more comfortable with the risk of litigation, but it's still too early to declare a complete victory. That's why we generally put off expanding our position. However, there is little doubt about the strength of Abbott's underlying fundamentals. In due course, this should occupy more and more attention. Abbott Laboratories Why we own it: Abbott is a high-quality medical technology company growing at a rapid pace. The stock has been grappling with two issues: falling Covid test sales and concerns that the adoption of GLP-1 will disrupt its flagship continuous glucose monitor. As Abbott's organic sales growth continues to shine, the market will realize that both concerns are overblown. Competitors: Dexcom and Edwards Lifesciences Club Portfolio Weight: 2.89% Most Recent Purchase: 05/29/2024 Started: January 29, 2024 Guidance Abbott Labs now projects adjusted EPS in the range of $4.64 to $4 .70, which at the midpoint is up one cent from its previous guidance of between $4.61 and $4.71. It's the third consecutive quarter in which Abbott has raised half 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 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 fund'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 INVESTMENT 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 THE RECEIPT OF ANY INFORMATION PROVIDED IN RELATION TO THE INVESTMENT CLUB. NO SPECIFIC RESULTS OR BENEFITS ARE GUARANTEED.
Attendees walk past the Abbott booth during CES 2024 at the Las Vegas Convention Center on January 10, 2024 in Las Vegas, Nevada.
Ethan Miller | fake images
medical device manufacturer Abbott Laboratories It delivered better-than-expected quarterly results on Wednesday and raised its profit forecasts for the third consecutive quarter. Shares rose more than 1%, shaking off an initially subdued reaction.
