Abbott (ABT) Nutrition Sales Strong Amid Spike in COVID Cases

Abbott Laboratories ABT has been delivering consistent organic growth in the Established Pharmaceuticals Division (EPD) and Diabetes segments. However, the soft neuromodulation business is a challenge. The stock currently carries a Zacks Rank #3 (Hold).

Over the past year, Abbott has been outperforming the industry it belongs to. The stock has gained 17.2% against the industry’s 6.9% fall.

The company posted better-than-expected earnings and revenue numbers for the third quarter of 2021. Overall, year-over-year improvements were robust. Excluding COVID-19 testing-related sales, which totaled $1.9 billion in the quarter, organic sales increased 12% year over year. Even though COVID-19 case rates surged in the United States and other geographies during the third quarter, the company registered strong growth in its more consumer-facing businesses like nutrition, established pharmaceuticals and diabetes care. This mitigated the modest impacts of the pandemic that Abbott witnessed from the surge in cases in certain areas of its hospital base businesses.

Abbott Laboratories Price

Abbott Laboratories Price

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In the third quarter, within Nutrition, strong growth was led by U.S. pediatric and international adult nutrition. In Pediatric Nutrition, the company registered strong growth in the United States from continued share gains in infant formula and toddler portfolio. Sales of Pedialyte, the company’s market-leading rehydration brand, once again grew in strong double digits, driven by the solid market uptake of several recently launched new products as well as investments in direct consumer promotion. In Adult Nutrition, there was mid-teens growth internationally on strong demand for Ensure and Glucerna brands, including new users entering these categories and existing customers increasing their usage.

Within Diagnostics, sales increased over 45%, led by growing demand for Abbott’s portfolio of COVID-19 tests as well as improvement in the base business. During the quarter, as the Delta variant spread and COVID cases surged, particularly in the United States, demand for testing, especially the rapid tests increased significantly. Within EPD, third-quarter sales grew over 15% year over year led by double-digit growth in China, Russia and India, which led to overall sales growth of 18% in key emerging markets.

Abbott has a consistent record of paying dividends with five-year annualized dividend growth being 12.72%.

On the flip side, with a spike in new COVID-19 case counts through the third quarter, Abbott noted modest impacts in its base business. More specifically, some softness was seen as the Delta variant spread and new cases increased in the United States, particularly more in August and throughout September. This led to a slowdown in the company’s hospital base business in certain areas.

Further, Abbott’s Neuromodulation arm reported an 8.3% year-over-year decline on an organic basis in the third quarter. Abbott noted that being extremely elective in nature, this business is having a hard time in terms of post-COVID recovery. The company currently is not much hopeful about a rebound in the fourth quarter within this business.

Added to this, foreign exchange is a major headwind for Abbott due to a considerable percentage of its revenues coming from outside the United States. The strengthening of euro and some other developed market currencies has been constantly hampering the company’s performance in the international markets.

Key Picks

Some better-ranked stocks from the broader medical space are Chemed Corporation CHE, Varex Imaging Corporation VREX and Laboratory Corporation of America Holdings, or LabCorp LH.

Chemed has a long-term earnings growth rate of 7.7%. The company surpassed earnings per share (EPS) estimates in three of the trailing four quarters and missed in one, delivering a surprise of 5.6%, on average. Chemed currently carries a Zacks Rank #2 (Buy).

Chemed has outperformed its industry over the past year. CHE has gained 3.7% against the industry’s 35.6% decline.

Varex has a long-term earnings growth rate of 5%. The company surpassed earnings estimates in the trailing four quarters, delivering an average surprise of 115.3%.

Varex has outperformed the industry it belongs to in the past year. VREX has gained 75.6% versus the industry’s 5% fall. Varex currently carries a Zacks Rank #2.

LabCorp reported third-quarter 2021 adjusted EPS of $6.82, which surpassed the Zacks Consensus Estimate by 42.9%. Revenues of $4.06 billion outpaced the Zacks Consensus Estimate by 13.4%. LabCorp currently carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

LabCorp has an estimated long-term growth rate of 10.6%. LH surpassed estimates in the trailing four quarters, the average surprise being 25.7%.

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