Abbott Laboratories Proves Its Worth Again

Abbott Laboratories Growth Outlives Pandemic Surge 

Abbott Laboratories NYSE: ABT is a highly valued stock trading at 27X this year's consensus target and 25X next year's consensus EPS estimate but remember, you get what you pay for. In this case, Abbott Laboratories has proven time and time again its worth to the market and it has done so once again. The second-quarter earnings release shows a strong impact from the COVID-19 pandemic but also strong results across all segments. While the pandemic influence is expected to subside, the rest of the business remains strong and growing well above the pre-pandemic level. 

Abbott Laboratories Beets And Raises On Broad Strength

Abbott Laboratories had a great quarter and one that proves the fundamental health of the business. While COVID-19 had a significant impact on the segment and net results the impact was larger-than-expected and coupled with better-than-expected results in all segments including diagnostics X-COVID. The top line of $10.22 billion in net consolidated revenue was down 2.3% sequentially but up 39.4% from last year and 28% from 2019. The results are 570 basis points better than expect and aided by a 2700 basis point tailwind from covid.

On a segment basis, the diagnostic segment was strongest with 62.8 % growTH but that does include  $1.30 billion in COVID testing-related revenue. COVID testing accounted for 40% of diagnostic revenue and 12.7% of the net. The medical devices segment was second-strongest with 51.3% growth fuelled by the resumption of surgeries and elective procedures in the wake of peak pandemic. The Pharmacy segment was the second strongest with 16.4% growth followed up by nutrition at 11.9% growth. The company also reports strength in all geographic regions.

Moving down the report, the company exhibited robust margin gains driven in part by internal efficiencies as well as revenue leverage. The GAAP EPS of  $0.66 is only in line with the consensus estimate but is up 120% from last year outpacing the revenue growth by a wide margin. On an adjusted basis, EPS of $1.17 is up 105% from last year and beat the consensus by $0.15. The strength in earnings, as well as business conditions, led the company to increase guidance as well. Abbott is now expecting adjusted earnings from continuing operations of $4.30 to $4.50 versus the consensus of $4.36. 

Another Big Dividend Increase Is In The Cards For Abbott Laboratories

Abbott Laboratories shocked the market, in a good way, at the end of 2020 by increasing the dividend by 25%. That move was driven by rapidly improving fundamentals, cash flow, and free cash flow that has only improved over the past quarter. Based on the company's 41% payout ratio, fortress balance sheet, and history of capital returns we are expecting to see another dividend increase at the end of this year. Based on the results and the Outlook, and the last distribution increase, we think it could be high double digits. The stock yields about 1.5% with shares trading near $119.

The Technical Outlook: Add It Is Ready To Move Higher

Shares of Abbott fell hard on the 1st of June following the company's updated guidance. At the time, the guidance was below the consensus estimate and shares imploded but that turned into a buying opportunity. Now, two months later, with the company outperforming its expectations and raising the guidance, the shares are poised to move even higher. Assuming support is maintained above the short-term moving average we see this stock breaking above $120 very soon. That move would confirm the uptrend and bring targets near $135 into play.