Yahoo Finance Abbott's (ABT) EPD Expansion Continues Despite FX Headwind
Abbott’s ABT diversified business portfolio is well-positioned to drive continued momentum in 2024. However, a challenging macroeconomic environment continues to dent Abbott’s business globally. The stock carries a Zacks Rank #3 (Hold) currently.
Abbott continues to expand its Diagnostics business foothold (consisting of 22.2% of the total revenues in the first quarter of 2024). Over the past few quarters, the company has witnessed increased demand for routine diagnostics, particularly in the United States and internationally. The company is particularly gaining from the strong adoption of its market-leading systems and demand for testing that takes place in a variety of settings, including hospitals, laboratories, urgent care centers, physician offices, retail pharmacies and blood screening facilities.
On a global scale, Abbott currently holds a prominent position in point-of-care testing, with a portfolio focused on four key areas — Infectious Disease, Cardiometabolic & Informatics, Toxicology and Consumer Diagnostics. As a major development within this arm, in April, the company received FDA approval for i-STAT TBI, the company’s point-of-care diagnostic test that could help determine if someone has suffered a mild traumatic brain injury or concussion in 15 minutes.
Within Abbott’s Established Pharmaceuticals Division (EPD) business, banking on the successful execution of its Branded Generic operating model, EPD is well positioned for sustained growth in many of these growing pharmaceutical markets. According to Abbott, its unique branded generics model was built to focus specifically on key emerging countries where long-term growth in medicines is guaranteed by the aging populations and the related rise in chronic diseases. We believe that Abbott’s continued focus on enhancing local capabilities and expanding its product portfolio within core therapeutic areas, targeted specifically to address local market needs, will further strengthen its position in these markets.
At the end of 2023, the EPD business registered three consecutive years of double-digit organic sales growth, successfully positioning itself as one of the best-positioned large healthcare companies in emerging markets. This business also delivered impressive gains on the bottom line in 2023 with an operating margin profile that reflected more than 350 basis points gains compared to 2019.
On the flip side, a challenging macroeconomic scenario in the form of the ongoing complex geo-political situation globally, specifically where Abbott operates, is driving higher-than-anticipated increases in expenses in terms of raw materials and freight. These could also result in broader economic impacts and security concerns, affecting the company’s business in the upcoming months. Industrywide, it has been seen that the deteriorating global economic environment is reducing demand for several MedTech products, resulting in lower sales and product prices and higher cost of goods and operating expenses.
In the first quarter, Abbott incurred a 3.1% increase in the cost of products sold (excluding amortization expense). The gross margin contracted 36 basis points (bps) to 55.2%. Selling, general and administration expenses were up 7.1% year over year, resulting in a 187-bps contraction in operating margin to 18.6%.
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 the euro and some other developed market currencies has constantly been hampering the company’s performance in the international markets. In the first quarter of 2024, foreign exchange had an unfavorable year-over-year impact of 2.9% on sales.
Key Picks
Some better-ranked stocks in the broader medical space are Hims & Hers Health HIMS, ResMed RMD and Medpace MEDP. While Hims & Hers Health and ResMed each sport a Zacks Rank #1 (Strong Buy), Medpace carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks Rank #1 stocks here.
Hims & Hers Heath stock has surged 169.4% in the past year. Estimates for the company’s earnings have increased from 18 cents to 19 cents for 2024 and from 33 cents to 35 cents for 2025 in the past seven days.
HIMS’ earnings beat estimates in three of the trailing four quarters and missed in one, delivering an average surprise of 79.2%. In the last reported quarter, it posted an earnings surprise of a staggering 150%.
Estimates for ResMed’s fiscal 2024 earnings per share have remained constant at $7.70 in the past 30 days. Shares of the company have declined 4% in the past year compared with the industry’s fall of 0.7%.
RMD’s earnings surpassed estimates in three of the trailing four quarters and missed in one, the average surprise being 2.8%. In the last reported quarter, it delivered an earnings surprise of 10.9%.
Estimates for Medpace’s 2024 earnings per share have remained constant at $11.29 in the past 30 days. Shares of the company have surged 79.4% in the past year compared with the industry’s 5.4% growth.
MEDP’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 12.8%. In the last reported quarter, it delivered an earnings surprise of 30.6%.
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