Medical device maker Abbott Laboratories on Wednesday reported better-than-expected quarterly results and increased its earnings guidance for the third straight quarter. Shares rose more than 1%, shaking off the initially weak reaction. Revenue in the three months ended Sept. 30 rose 4.9% to $10.64 billion, beating estimates of $10.55 billion, according to data provider LSEG. Organic sales, which do not include Covid tests, rose 8.2% from the same period last year. It is unclear whether analyst estimates are comparable. Adjusted earnings per share (EPS) of $1.21 beat LSEG expectations by 1 cent and increased 6.14% year over year. ABT stock performance year-to-date at Mountain Abbott Labs. Abbott stock is extending its period of outperformance versus its healthcare market peers. The stock entered Wednesday's session up a little more than 10% since the July 26 close — after the closing bell that day, the company was ordered to pay $495 million in damages in a lawsuit over its premature infant formula, which was a significant tort. The stock has accumulated since mid-March. This advance beats the S&P 500, a healthcare exchange-traded fund, which rose 6.5% and 1.9%, respectively, over the same period. Bottom line: In the third quarter, Abbott Labs showed why we want to stick with the stock in the face of the legal battles that emerged earlier this year and spooked investors. We reiterate a price target of $130 and a rating of 2, which means we will wait for a pullback before adding to our position. At its 2024 low in July, Abbott's market value was $174.1 billion, about $32 billion lower than it was in March before its rival in the premature infant formula market lost a lawsuit and put Abbott's caseload in the spotlight. We fought in the months that followed, arguing that the sale was overblown, especially given that the scientific community supported Abbott's view that the formulas were medically necessary for premature babies and did not cause gastrointestinal disease commonly abbreviated as NEC. Three US agencies earlier this month expressed more support for using the formulas. At its highs in Wednesday's session, Abbott has recovered all of its market cap losses since March 14. “Abbott has really nailed that,” Jim Cramer said Wednesday. “There's a lot to like about the Abbott neighborhood.” Commentary A good place to start is Abbott's Medical Devices segment, which saw revenue increase nearly 12% to $4.75 billion better than expected, as shown in the chart below. On an organic basis, which excludes the impact of foreign exchange rate fluctuations and divestments, medical device sales increased 13.3%. It's a good thing that the company's largest segment in terms of sales is the one with the fastest growth rate – and this is the case with Abbott. The FreeStyle Libre, a continuous glucose monitoring (CGM) device for people with diabetes, continued its impressive growth during the quarter, with organic sales up 21%, a slight acceleration from the prior three-month period. While Abbott has benefited from the struggles of CGM rival Dexcom, CEO Robert Ford maintained an optimistic view of the market in the near and long term. “This is a big market opportunity for us,” he said, noting that there are about 10 million CGM users worldwide right now but there are more than 100 million diabetics in developed countries. Abbott and its peers are increasingly targeting CGMs at non-diabetics, hoping that health-conscious people will want to use the biosensors to learn their body's response to factors such as food, stress and exercise. Abbott launched its over-the-counter CGM product called Lingo in the U.S. in early September, and Ford said the product is “off to a very good start.” People can buy a package with one sensor for $49, two for $89, or six for $249. The two-sensor package is the most popular version, he said. The sensors last about two weeks, and Ford said he's been positively surprised by the reorder rates so far. Abbott is targeting $10 billion in sales of continuous glucose monitors by 2028, and Lingo represents a “great opportunity” to add to that goal over time, Ford said. Another highlight: Abbott Labs announced that its board of directors authorized a new $7 billion stock purchase program. Its prior authorization as of 2021 was low, Ford said. In the third quarter, Abbott repurchased $750 million worth of stock, with Ford saying executives believe there is a disconnect between the stock's valuation and the fundamentals of the company's business. In fact, Abbott typically prioritizes investing in its product pipeline over stock buybacks, so the fact that management is ramping up its buyback program really shows how well they feel about the current stock price. Abbott's nutrition business — home to brands like Ensure protein powder and PediaSure children's drinks — was a weak point, just as it was in the second quarter. Sales fell about 0.3% year over year to $2.07 billion, less than the $2.17 billion that analysts had expected, according to FactSet. On an organic basis, revenues increased by 3.4% in this segment. Ford said the international children's business was the biggest drag on nutrition in the quarter, blaming that on Abbott's “commercial execution” early in the quarter. Ford said the company quickly recognized the weakness and took steps to fix it, including personnel changes followed by inventory adjustments to distributors. Ford said early indicators show that Abbott has taken the right corrective actions and that growth in this division and the sector overall should improve in the current quarter. Regarding the lawsuits, specifically, Ford once again issued a strong defense of premature infant formula. He said the statement from the three US health agencies — the Food and Drug Administration, the Centers for Disease Control and Prevention, and the National Institutes of Health — “says a lot.” “It was a very strong statement,” Ford said, though he noted that the judge in the ongoing trial in Missouri has not yet allowed it to be introduced as evidence in the case. He said he expects that in future cases, the statement and accompanying report on the NEC and formulas will be included as evidence for the jury to consider. Abbott's recent stock performance suggests that investors are becoming more comfortable with the risks of litigation, but it is still too early to declare complete victory. This is why we generally postpone adding to our position. However, there is no doubt about the strength of Abbott's underlying fundamentals. In time it should occupy more and more spotlight. Abbott Laboratories Why we own it: Abbott is a rapidly growing, high-quality medical technology company. The stock has been dealing with two burdens: declining Covid test sales and concerns that GLP-1 adoption will disrupt its leading continuous glucose monitoring device. As Abbott's organic sales growth continues to shine, the market will realize that both concerns are overblown. Competitors: Dexcom, Edwards Lifesciences Weight in Club Portfolio: 2.89% Last Purchase: 05/29/2024 Start: January 29, 2024 Abbott Labs now expects adjusted EPS to be in the range of $4.64 to $4.70, which at the midpoint rises to a penny One versus its previous guidance of $4.61 to $4.71. It's the third straight quarter in which Abbott has raised its EPS forecast. The company reiterated its forecast for full-year organic sales growth of 9.5% to 10%. (Jim Cramer's Charitable Trust is a long ABT fund. See here for a full list of stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you'll receive a trade alert before Jim takes a trade. Jim waits 45 minutes after a trade alert is sent before buying or selling a stock in his charitable fund's portfolio. If Jim talks about a stock on CNBC TV, he waits 72 hours after the trade alert is issued before executing the trade. The above Investment Club information is subject to our Terms and Conditions and Privacy Policy, as well as our Disclaimer. No obligation or fiduciary duty exists or is created by your receipt of any information provided in connection with the Investment Club. No specific results or profits are guaranteed.
Attendees walk past the Abbott booth during CES 2024 at the Las Vegas Convention Center on January 10, 2024 in Las Vegas, Nevada.
Ethan Miller | Getty Images
Medical device manufacturer Abbott Laboratories On Wednesday, it reported better-than-expected quarterly results and increased its earnings guidance for the third straight quarter. Shares rose more than 1%, shaking off the initially weak reaction.
