Abbott Earnings: Solid Underlying Growth Offset by COVID-19 Diagnostic Reset

Narrow-moat Abbott ABT posted solid third-quarter results with underlying strength in its device business along with robust recovery in nutrition, which partially offset the ongoing unwinding of its COVID-19 boom. After minor adjustments to our expectations, we’re leaving our $104 fair value estimate unchanged. On the whole, Abbott’s nonpandemic businesses have benefited from solid underlying demand, though this wasn’t quite enough to completely offset the decline in COVID-19 diagnostics. Rapid and molecular diagnostics, the two product lines that benefited most from COVID-19, saw quarterly year-over-year declines of 59% and 28%, respectively. However, we anticipate the brunt of this decrease is in the rearview mirror and growth should stabilize.

We were most impressed by double-digit growth across most of the medical device segment, including electrophysiology, structural heart, and neuromodulation. Diabetes remains on a tear thanks to the adoption of Libre 3, which isn’t unexpected. We anticipate growth can be maintained into 2024 as integration with Insulet’s Omnipod 5 and Tandem’s t:Slim X2 should arrive by the end of this year, and then patients currently relying on automated insulin delivery will have the option to switch over. We’ve been intrigued, but not necessarily surprised, by Abbott’s recent acquisition of Bigfoot Biomedical. We’ve long surmised that Abbott would eventually inch into the insulin delivery market, following its immense success with Libre. The Bigfoot purchase gives Abbott an opportunity to delve into insulin delivery through pens (versus pumps) and squarely targets the large portion of patients who use multiple daily insulin injections. On one hand, we think focusing on enhancing user-friendliness of insulin pens fits with Abbott’s current diabetes experience and avoids direct competition with the pumpmakers that offer integration with Libre. On the other, we speculate Abbott could move further into delivery devices in the future.