Medical device maker Abbott Laboratories delivered better-than-expected quarterly results on Wednesday and raised its profit forecast for the third straight quarter. Shares rose more than 1%, shaking off an initially muted reaction. According to data provider LSEG, sales rose 4.9% to $10.64 billion in the three months ended September 30, beating estimates of $10.55 billion. Organic sales, which exclude Covid testing, increased 8.2% compared to the same period last year. It's unclear whether analysts' estimates are comparable. Adjusted earnings per share (EPS) of $1.21 beat LSEG's expectations by a penny and rose 6.14% on an annual basis. ABT YTD Mountain Abbott Labs year-to-date stock performance. Abbott shares extend their outperformance against the market and healthcare peers. The stock opened Wednesday with a gain of just over 10% since the close on July 26 – after the closing bell that day, the company was ordered to pay $495 million in damages in a lawsuit over its premature baby formula. which was a big problem overhang on the stock since mid-March. This increase comes ahead of the S&P 500, a closely followed healthcare exchange-traded fund, which rose 6.5% and 1.9%, respectively, over the same period. Conclusion In the third quarter, Abbott Labs showed why we wanted to hold on to the stock in light of the litigation that emerged earlier this year and spooked investors. We reiterate our price target of $130 and a rating of 2, meaning we would wait for a decline before adding to our position. At its 2024 low in July, Abbott's market capitalization was $174.1 billion, about $32 billion below where it was in March, before its rival in the premature baby formula market lost a court case and Abbott's own litigation burden came into the spotlight. We fought the stock in the months that followed, arguing that the selling had been overdone, especially given that the scientific community supported Abbott's view that the formulas were medically necessary for premature babies and did not cause an intestinal disorder commonly known as NEC is abbreviated. A trio of U.S. agencies came out more strongly in favor of using the formulas earlier this month. At the peak of Wednesday's session, Abbott had recouped all market capitalization losses since March 14. “Abbott really persevered,” Jim Cramer said Wednesday. “The Abbott neighborhood just has a lot to offer.” Comment The starting point is Abbott's medical device segment, which saw revenue rise about 12% to a better-than-expected $4.75 billion, as shown in the chart below. On an organic basis, excluding the impact of exchange rate fluctuations and divestitures, medical device sales increased 13.3%. It's nice when a company's highest-grossing segment is the one with the fastest growth rate – and that's the case with Abbott. FreeStyle Libre, a continuous glucose monitor (CGM) for people with diabetes, continued its impressive growth in the quarter, posting organic sales increase of 21%, a slight acceleration from the previous three-month period. While Abbott has benefited from CGM rival Dexcom's troubles, CEO Robert Ford remained optimistic about the market in the short and long term. “This is a mass market opportunity we have,” he said, noting that there are currently about 10 million CGM users worldwide, but there are over 100 million diabetics in developed countries. Abbott and his colleagues are increasingly targeting CGMs at non-diabetics and hope health-conscious people will want to use biosensors to learn more about their body's response to factors such as food, stress and exercise. Abbott launched its over-the-counter CGM called Lingo in the US in early September, and Ford said the product was “off to a very strong start.” You 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 has been pleasantly surprised by the reorder rates so far. Abbott has set a goal of $10 billion in CGM sales by 2028, and Lingo represents a “huge opportunity” to achieve that goal over time, Ford said. Another highlight: Abbott Labs announced that its board has approved a new stock purchase program worth $7 billion. Previous approval from 2021 had run out, Ford said. In the third quarter, Abbott repurchased $750 million of stock. Ford said executives believed there was a disconnect between the stock's valuation and the company's business fundamentals. In fact, Abbott typically prioritizes investments in its product pipeline over stock buybacks. So the fact that management has stepped up its buyback program really shows how they feel about the current share price. Abbott's nutrition division – home to brands like Ensure protein powder and PediaSure children's drinks – was a weak spot, as it was in the second quarter. Sales fell about 0.3% year over year to $2.07 billion, according to FactSet, falling short of analysts' expectations of $2.17 billion. On an organic basis, sales in the segment increased by 3.4%. Ford said international pediatric business was the biggest drag on nutrition this quarter, blaming Abbott's own “commercial execution” earlier in the quarter. The company quickly identified the weakness and took steps to address it, Ford said, including staffing changes and subsequent inventory adjustments at dealers. Ford said early indications indicate that Abbott has taken the right corrective actions and that growth in this business unit and the segment as a whole should improve in the current quarter. In particular, in the lawsuits, Ford once again vigorously defended premature baby formula. He said the statement from the three U.S. 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, although he noted that the judge in an ongoing case in Missouri has not yet allowed it to be introduced as evidence in the case. He said he expects the statement and an accompanying NEC and formula report to be included as evidence for jury consideration in future cases. Abbott's recent stock performance suggests that investors are becoming increasingly comfortable with the risk of litigation, but it is still too early to declare a complete victory. For this reason, we generally hold back from increasing our position. Still, there is little doubt about the strength of Abbott's underlying fundamentals. As time goes on, this is likely to come more and more into the spotlight. Abbott Laboratories Why we own the company: Abbott is a high-quality medical technology company that is growing rapidly. The stock is grappling with two headwinds: declining sales of Covid tests and concerns that the introduction of GLP-1 will disrupt its flagship continuous glucose monitor. As Abbott's organic sales growth continues to shine, the market will realize that both concerns are overblown. Competitors: Dexcom and Edwards Lifesciences Weight in Club Portfolio: 2.89% Last Purchase: 5/29/2024 Initiated: January 29, 2024 Forecast Abbott Labs now forecasts adjusted earnings per share in the range of $4.64 to $4.70 dollar, which represents an increase in the mid-one cent from the previous forecast of $4.61 to $4.71. It's the third quarter in a row that Abbott has raised its EPS forecast midway through. The company reiterated its guidance for full-year organic sales growth of 9.5% to 10%. (Jim Cramer's Charitable Trust is long ABT. See a full list of stocks here.) As a subscriber to CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable foundation's portfolio. If Jim discussed a stock on CNBC television, he waits 72 hours after the trade alert is issued before executing the trade. THE INVESTING CLUB INFORMATION SET FORTH ABOVE IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY, ALONG WITH OUR DISCLAIMER. THERE ARE NO fiduciary duty or duty IN RECEIVING YOUR 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 reported better-than-expected quarterly results on Wednesday and raised its profit forecast for the third consecutive quarter. Shares rose more than 1%, shaking off an initially muted reaction.
