This year hasn’t been very good for Abbott Laboratories (ABT), with ABT stock having lost about 6% of its price year-to-date.
ABT investors are probably reconsidering their positions in the company. However, the company’s third -quarter earnings show that ABT still holds those values that give long-term stability, which is exactly what investors seek.
Before delving into the outlook, let’s take a look at the earnings highlights.
Worldwide sales for Q3 came in at $5.15 billion, a 1.4% increase over prior-year quarter sales. ABT said its EPS for the third quarter was 54 cents, same as it reported for the prior-year quarter. Analysts expected sales of $5.14 billion and an EPS of 53 cents.
Now to the takeaway.
ABT Remains Well-Diversified
Most of the news outlets that have reported on the latest ABT earnings began by pointing out that ABT was mainly helped in the third quarter by growth in the emerging markets.
ABT mainly does business in the emerging markets through the sales of generic drugs and offering diagnostics services. ABT’s generic drug sales went up 24.6% in the third quarter, while its worldwide diagnostics sales decreased 5.4% mainly because of unfavorable exchange rates. Still, there are positives worth noting.
First, as a reminder, emerging markets live on generic drugs. The systems in these regions have next to no platforms in place that grant affordable access to branded drugs. But people in these regions increasingly have more money to spend on healthcare, which has been unimpressive until recently. Emerging markets will continue to live on generic drugs for many years to come, but they will increasingly spend more on those drugs.
Second, due to being underdeveloped for longer than developed countries, emerging markets lag behind in diagnostics. The good thing is that, since these markets are emerging, diagnostics would also emerge due to improved orientation and economic condition to support it.
As proof, ABT noted that its diagnostics business keeps posting market-beating growth in the emerging markets.
Overall, the generics and diagnostics markets are two healthcare areas that are poised for long-term growth in the emerging markets. And with ABT extending its tentacles in these two areas, it is offering investors a reliable way of investing in the emerging markets’ healthcare system.
And we should also note that the impressive emerging markets growth is in addition to the leading position that ABT holds in the heart stents and adult nutritional beverages markets. As I pointed out in a recent gallery of medical devices companies to buy, heart health issues cannot be taken lightly. So regardless of if the economy is good or bad, the cardiac care market should always perform, which is a positive for ABT.
All of the strategic business decisions that Abbot has taken all together means that ABT isn’t relying heavily on any of its business segments for its revenues, which is a requisite for long-term stability. Based on the current business model, it is unlikely that ABT would ever rely heavily on any of its segments for its revenues, as all of its segments have good growth opportunities.
Long story short, with ABT stock still down this year, it is a good time for long-term investors who seek stability to buy stocks of ABT. Because of the growth potential in Abbott’s various business segments, there is plenty of upside potential for ABT stock.
As of this writing, Craig Adeyanju did not hold a position in any of the aforementioned security.
