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Is Abbott Stock a Buy at $105 as Production in Troubled Plant Resumes?

Leading healthcare company Abbott Laboratories (ABT) reported robust first-quarter results. And the company is well-positioned to benefit from its diversified business. Moreover, as ABT is resuming infant formula production at its Michigan facility, is the stock a good buy at the current price level? Read more to find out…

Headquartered in North Chicago, Illinois, Abbott Laboratories (ABT) discovers, develops, manufactures, and sells health care products in the United States and internationally. The company operates in four segments: Established Pharmaceutical Products; Diagnostic Products; Nutritional Products; and Medical Devices. It has a market capitalization of $185.09 billion.

This month, ABT announced resuming baby formula production at its Sturgis, Michigan facility. The Sturgis plant was shut down in February over contamination issues. The production restarted on June 1 after meeting initial requirements agreed to with the U.S. Food and Drug Administration (FDA) as a part of the consent decree entered on May 16.

However, damage from severe thunderstorms had forced the plant to halt operations in mid-June, just two weeks after resuming production. Following a July 1 reboot, the production of EleCare, a specialty formula for infants with severe food allergies and digestive problems, was resumed at the Sturgis plant. The company is working to restart Similac production as soon as possible, said ABT’s spokesman Jone Koval.

On the other hand, the company continues to strengthen its portfolio with new product approvals and launches. On July 12, ABT received the FDA’s Breakthrough Device Designation to investigate the use of its deep brain stimulation (DBS) system in treatment-resistant depression (TRD), a form of major depressive disorder.

In addition, earlier this month, ABT announced the development of a new bio wearable that will continuously monitor glucose and ketone levels in one sensor. “We're optimistic that this will be the next big advancement in diabetes tech and a breakthrough for people with diabetes, especially those at risk of developing diabetic ketoacidosis,” said Jared Watkin, Senior Vice President of ABT’s diabetes care business.

ABT’s shares have gained 2.7% in price over the past month to close the last trading session at $105.71.

Here is what could influence ABT’s performance in the upcoming months:

Robust Financials

ABT's net sales increased 13.8% year-over-year to $4.99 billion in the fiscal 2022 first quarter ended March 31, 2022. The company’s adjusted gross margin amounted to $7.03 billion, up 15.4% year-over-year. Its adjusted earnings before taxes grew 29.2% from the prior-year period to $3.60 billion.

Furthermore, the company’s adjusted net earnings and adjusted earnings per share came in at $3.08 billion and $1.73, registering increases of 29.9% and 31.1% year-over-year, respectively.

Favorable Analyst Estimates

Analysts expect ABT's revenue for the fiscal 2022 second quarter (ended June 2022) to come in at $10.30 billion, representing a rise of 6.3% from the same period in 2021.

Also, Street expects the company's EPS to grow 12.6% per annum over the next five years. The company has an impressive earnings history as it has topped the consensus EPS estimates in each of the trailing four quarters.

High Profitability

ABT’s trailing-12-months gross profit margin of 58.10% is 5.3% higher than the 55.18% industry average. And its trailing-12-month EBIT margin of 22.58% is 1,552.4% higher than the 1.37% industry average. Likewise, the company’s trailing-12-months EBITDA margin of 30.28% is 607.4% higher than the industry average of 4.28%.

Consensus Rating and Price Target Indicate Potential Upside

Of the 12 Wall Street analysts that rated ABT, 10 rated it Buy, one rated it Hold, and one rated it Sell. The 12-month median price target of $130.50 indicates a 23.5% potential upside. The price targets range from a low of $95.00 to a high of $145.00.

Power Ratings Show Promise

ABT has an overall A rating, equating to a Strong Buy in our POWR Ratings system. The POWR Ratings are calculated by accounting for 118 distinct factors, with each factor weighted to an optimal degree. 

ABT has a grade of A for Growth, consistent with analysts’ revenue and earnings growth estimates. In addition, the stock has a B grade for Quality, which is in sync with its higher-than-industry profitability.

ABT is ranked #2 out of 149 stocks in the Medical - Devices & Equipment industry.

Beyond what I have stated above, we have also given ABT grades for Sentiment, Momentum, Value, and Stability. Get access to all the ABT ratings here.

Bottom Line

ABT reported solid top and bottom-line growth in the fiscal 2022 first quarter. Furthermore, the company seems well-positioned to benefit from the recommencement of production at its Sturgis, Michigan plant and diversified product portfolio.

Given the company’s strong financials, higher-than-industry profitability, and solid revenue and earnings growth estimates, we think it could be wise to invest in the stock now.

How Does Abbott Laboratories (ABT) Stack Up Against its Peers?

ABT has an overall POWR Rating of A. One could also check out these other stocks within the Medical - Devices & Equipment industry with an A (Strong Buy) rating: Fonar Corporation (FONR), Olympus Corp. ADR (OCPNY), and Electromed, Inc. (ELMD).

ABT shares were trading at $108.12 per share on Friday morning, up $2.41 (+2.28%). Year-to-date, ABT has declined -22.25%, versus a -18.54% rise in the benchmark S&P 500 index during the same period.

About the Author: Mangeet Kaur Bouns

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.


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