Inflation remains way above the Fed’s 2% target despite cooling down. Moreover, although the central bank has indicated a rate hike pause, a cut is not in sight. Amid this, the stable demand for healthcare products should help fundamentally sound medical stock Abbott Laboratories (ABT) perform steadily.
Before discussing and examining the trends of some of its key metrics, let’s look at the market conditions that make the investment case pretty strong for ABT.
U.S. consumer prices slowed to rise below 5% annually in April for the first time in two years. However, prices are still sticky because of rents and rebounds in gasoline and used vehicle costs. The 25-basis-point rate hike raises the key rate to a range of 5% to 5.25%, the highest in 17 years.
Although a pause in hikes is expected, the Fed is unlikely to cut rates this year. A mild recession is anticipated later this year. According to the treasury spread, the probability of a U.S. recession 12 months ahead (April 2024) stands over 68%.
Against this backdrop, healthcare products provider ABT is expected to stay ahead of a recession due to its strong fundamentals. Last month, the company acquired Cardiovascular Systems, Inc. (CSI), a medical device company with an innovative atherectomy system. This should bolster the company’s portfolio.
ABT also pays a stable dividend. Its annual dividend of $2.04 yields 1.85% on prevailing prices. Its dividend payouts have grown at CAGRs of 13% and 12.5% over the past three and five years, respectively. The company also has a record of nine consecutive years of dividend growth.
Moreover, the stock has a five-year beta of 0.66, indicating lesser volatility than the broader market.
Let’s look at the trends of some of its key financial metrics now.
ABT’s Performance Over Two Years
ABT’s net income has fluctuated over the past two years. From June 30, 2020, to March 31, 2021, net income increased by $272 million, or 87.5%, from $311 million to $583 million.
This upward trend continued through September 30, 2021, and December 31, 2021, growing to $724 million and $707 million, respectively. However, from September 30, 2021, to March 31, 2023, net income decreased by $106 million, or 14.1%. The most recent figure on March 31, 2023, was $580 million.
There has been a steady rise in ABT’s revenue from $31.4 billion on June 30, 2020, to $45.5 billion on June 30, 2022. The highest value was on December 31, 2021, with $43.1 billion. However, the most recent quarter experienced a slight decrease to $41.5 billion on March 31, 2023. Overall, ABT recorded a growth rate of 38% over this two-year period.
The gross margin of ABT varied between 56.1% and 57.6% from June 2020 to March 2023. The most recent value of 55.5% in March of 2023 is lower than the June 2020 figure of 57.6%. The overall trend is a decrease in gross margin, with a growth rate of -3.0%.
The analyst price target for ABT has fluctuated between $117.00 - $140.00 in the past year and a half. Most recently, on May 12, 2023, the analyst price target was $126.50. Comparing the first value of $136.00 from November 12, 2021, with the last value from May 12, 2023, the growth rate is 6.7%.
ABT Share Price’s Steady Increase
The trend in ABT’s share price over this period is increasing. The share price started at $103.19 on November 18, 2022, and steadily increased over the following months, closing the last trading session at $110.05. Here is a chart of ABT's price over the past 180 days.
Strong Ratings Across Quality, Sentiment, and Stability
ABT has consistently held an overall POWR Ratings grade of B, which translates to Buy, since November 2022. It is currently ranked #23 out of 139 stocks in the Medical - Devices & Equipment industry, which is lower than average, but not the lowest. The most recent POWR Grade value for ABT is B.
The three most noteworthy dimensions of ABT, according to POWR Ratings, are Quality, Sentiment, and Stability. Quality has a high rating of 85 at all points in time, indicating that ABT is a highly reliable investment option.
Sentiment has also been consistently high, ranging from 92 to 93, which indicates strong investor confidence. Lastly, Stability has been consistently rated at 89 or 90, suggesting ABT is highly resilient to market fluctuations. All three of these dimensions appear to have remained relatively consistent, with only small fluctuations in ratings over time.
How Does Abbott Laboratories (ABT) Stack Up Against Its Peers?
Other stocks in the Medical – Devices & Equipment sector that may be worth considering are Smith & Nephew plc (SNN), Utah Medical Products, Inc. (UTMD), and Zimmer Biomet Holdings, Inc. (ZBH) -- they have better POWR Ratings.
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ABT shares were trading at $109.74 per share on Friday afternoon, down $0.31 (-0.28%). Year-to-date, ABT has gained 0.91%, versus a 7.51% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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