Abbott Earnings: Strong Medical Utilization and New Product Cycles Drive Quarterly Growth

Abbott’s ABT second-quarter results were impressive and built upon strength seen in the previous quarter, with pandemic-related diagnostics falling slightly more than we’d expected but offset by stronger-than-expected growth in medical devices. The firm remains largely on track to meet our full-year top- and bottom-line expectations, and we’re leaving our $104 fair value estimate unchanged. Abbott’s recent new product cycles and product approvals underscore our confidence in its narrow economic moat. Meaningful innovation in cardiac rhythm management, continuous glucose monitors, and structural heart have reinforced Abbott’s intangible assets.

Abbott’s quarterly revenue fell by 9% on an organic basis year over year, dragged down by the 45% decline in diagnostics. Positively though, the remaining divisions—nutrition, established pharmaceuticals, and medical devices—all delivered double-digit growth. We’re pleased to see that Abbott has been able to recover roughly 75% of the U.S. infant formula market share it had lost last year when it shut down its plant in Sturgis, MI. Considering how consolidated the infant formula market is in the U.S., we anticipate the firm can ultimately regain nearly all of its market share.

We think Abbott’s medical device business benefited from a one-two punch. First, the robust return of procedure volume that first emerged in first quarter has continued, and we expect it to last into 2024. Care delayed during the pandemic as well as the normal expected volume have driven medical device growth into the teens. Of the competitors that have reported thus far, Abbott and Johnson & Johnson saw quarterly device sales rise 14% and 13%, respectively. Second, Abbott’s recent approvals of Tacticath Flex (for atrial fibrillation), a leadless Aveir DR pacemaker, and Libre 3 continuous glucose monitor should add topspin over the next 12 to 18 months.