Abbott Laboratories Gains 12.7% in a Year: What's Driving the Stock?

Abbott Laboratories ABT has witnessed strong momentum in the past year. Shares of the company have risen 12.7% compared with the 9% growth of the industry during the same time frame. The S&P 500 Composite has increased 10%.

With healthy fundamentals and strong growth opportunities, this Zacks Rank #3 (Hold) company appears to be a solid wealth creator for its investors at the moment.

Abbott discovers, develops, manufactures and sells a diversified line of healthcare products. The company has four reportable segments, namely, Established Pharmaceutical Products, Diagnostic Products, Nutritional Products and Medical Devices. Its Established Pharmaceuticals Division includes the branded generics business in emerging markets and its Medical Devices segment includes the diabetes care, vision care and vascular businesses. Within the Diagnostics segment, Abbott manufactures and markets diagnostic systems and tests in four business lines — core laboratory, molecular, point of care and rapid diagnostics. Meanwhile, the Nutrition business includes a broad line of pediatric and adult nutritional products. 

Factors Favoring ABT’s Share Price Growth

Abbott’s share price is trending upward, prompted by the strong prospects within the Core Diagnostics business. The company continues to expand its Diagnostics business foothold. It is witnessing increased global demand for its routine diagnostic. It is particularly gaining from strong demand for its portfolio of respiratory disease tests. 

In rapid and point-of-care diagnostics businesses, the company is successfully expanding its test menus and is also capitalizing on the growing demand for respiratory tests that can be performed at home or in more traditional healthcare settings. In lieu of this, rapid diagnostics sales (excluding COVID-19 testing sales) increased 16% year over year. Additionally, the Core Laboratory Diagnostics business grew 4%, driven by continued strong demand for Abbott’s immunoassay, clinical chemistry, hematology and blood screening testing panels. This increased optimism among investors and is expected to contribute further.

Investors showed optimism about Abbott’s growing sales of its flagship, sensor-based, continuous glucose monitoring system, FreeStyle Libre. FreeStyle Libre has achieved global leadership among continuous glucose monitoring systems for both Type 1 and Type 2 users. Of late, the company is fast gaining momentum, leveraging consistent upgrades of FreeStyle Libre.

Abbott’s sales recovery within the Nutrition business looks encouraging. The business consistently demonstrates strong growth and market share gains. The overall Nutrition business is particularly expanding on strong global demand for the company’s adult nutrition products like Ensure and Glucerna. In the fourth quarter of 2024, the company reported 7.1% organic growth within this business backed by a strong 11.4% growth in Adult Nutrition.

Factors That May Offset ABT’s Gains

In the fourth quarter, Abbott incurred an 8.5% increase in the cost of products. The gross margin contracted 55 basis points to 55%. Selling, general and administration expenses were up 6.7% year over year, resulting in a 43-basis-point contraction in the adjusted operating margin. This was due to the ongoing complex geopolitical situation globally and the deteriorating global economic environment, which is reducing demand for several products, resulting in increased costs of goods and operating expenses of the businesses of the company.

Further, Abbott remains highly exposed to currency fluctuations. Unfavorable currency movements have been a major dampener over the last few quarters. In the fourth quarter of 2024, foreign exchange had an unfavorable year-over-year impact of 1.4% on sales.

A Look at ABT’s Estimates

The Zacks Consensus Estimate for 2025 EPS has remained unchanged at $5.15 in the past 30 days.

Abbott has an earnings yield of 4.1% compared with the industry’s 0.4%.

Stocks to Consider

Some better-ranked stocks in the broader medical space are Phibro Animal Health PAHC, Masimo MASI and Cardinal Health CAH.

Phibro Animal Health has an earnings yield of 8.2%, well ahead of the industry’s 1.2%. Its earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 27.06%. Its shares have surged 45.3% against the industry’s 2.2% decline in the past year.

PAHC sports a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Masimo, presently carrying a Zacks Rank #2 (Buy), has an earnings yield of 2.5%, well ahead of the industry’s -3.6%. Its earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 14.4%. Its shares have surged 45.3% against the industry’s 2.2% decline in the past year.

Cardinal Health, carrying a Zacks Rank #2 at present, has an estimated long-term earnings growth rate of 10.7% compared with the industry’s 9.4%. Shares of the company have rallied 12.1% against the industry’s 2.3% decline. CAH’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 9.6%.

This article originally published on Zacks Investment Research (zacks.com).

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