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What's in Store for Abbott Labs (ABT) This Earnings Season?

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Abbott Laboratories (ABT - Free Report) is scheduled to report fourth-quarter and full year 2016 results before the opening bell on Jan 25.

Shares of Abbott Labs have outperformed the Zacks classified Large Cap Pharmaceuticals industry in the last 12 months. In fact, the stock improved 1.1% during this period, compared to an inch up of 0.3% for the industry.

Last quarter, Abbott Labs delivered a positive earnings surprise of 1.72%. Let’s see how things are shaping up for this quarter.

Factors at Play

Abbott Labs operates under four segments – Established Pharmaceuticals Division (EPD), Medical Devices, Diagnostics and Nutrition.Abbott has a strong position in both developed and emerging markets. Continued outperformance at the Medical Devices and Established Pharmaceuticals division is likely to drive sales in the quarter.

The Diagnostics segment is expected to see persistent above-market performance in Core Laboratory and Point of Care Diagnostics. The launch of AlinIQ should also add to the company’s top line. Segment sales are anticipated to grow in the mid-single digits in the fourth quarter.

The soft performance in pediatric nutrition business in China has impacted the third-quarter results of the company. Further it is expected to persist in the near term. The business environment in China has also been impacted by rapid channel shifts and new safety regulations which are driving an oversupply of product in the market and huge discounts.

At EPD, sales are expected to grow in high single digits in the fourth quarter. Realignment of the division through acquisitions in Latin America and Russia, along with business divestitures in developed markets, has placed the company advantageously for the coming quarters. The company has a leading position in India, Russia and Latin America

At Medical Devices, Vascular is expected to grow in the mid-single digits in the fourth quarter driven by growth from MitraClip and Supera, while Diabetes care sales are expected to increase in the double-digits band, driven by continued consumer uptake of FreeStyle Libre system in Europe. During the third quarter, the company obtained FDA approval for Absorb, the only fully dissolving vascular stent. In Sep 2016, the FDA also approved FreeStyle Libre Pro system in the U.S. which should boost diabetes-care sales.

The recent acquisition of St. Jude Medical has augmented the company’s position in cardiovascular devices market. Medical Optics is forecasted to grow in low to mid single-digit sales. Meanwhile, Abbott Labs announced to sell its medical optical business to Johnson & Johnson (JNJ - Free Report) in Sep 2016 in order to focus on its cardiovascular devices business.

Concurrent with the third-quarter results, Abbott Labs narrowed its 2016 earning guidance to $2.19 to $2.21 from the previous range of $2.14 to $2.24 per share. The company continues to expect sales growth in the mid-single digits (on an operational basis) for 2016. Unfavorable movements in foreign exchange rates should negatively impact sales by 2% resulting in reported sales growth in the low-single digits for 2016.

For the fourth quarter, the company expects earnings per share in the range of 64 cents–66 cents. On an operational basis, sales are expected to grow in mid-single digits.

During the quarterly call, investors focus should remain on the company’s performance, sales ramp-up of the newly launched products and recent developments.

Surprise History

Abbott Labs has an impressive track record. The company surpassed estimates in each of the trailing four quarters with an average earnings surprise of 3.07%.

What Our Model Indicates

Our proven model does not conclusively show that Abbott Labs is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) to beat earnings. However, that is not the case here, as you will see below.

Zacks ESP: The Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 64 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Abbott Labs has a Zacks Rank #3 which in turn increases the predictive power of ESP. However, we need to have a positive ESP to be confident about an earnings beat.

As it is we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Abbott Laboratories Price and Consensus

 

Abbott Laboratories Price and Consensus | Abbott Laboratories Quote

Stocks to Consider

Here are some other health care stocks that you may want to consider, as our model shows that they too have the right combination of elements to post an earnings beat this quarter.

AbbVie, Inc. (ABBV - Free Report) has an Earnings ESP of +0.83% and a Zacks Rank #3. The company is expected to release results on Jan 27. You can see the complete list of today’s Zacks #1 Rank stocks here.

Eli Lilly and Company (LLY - Free Report) has an Earnings ESP of +3.06% and a Zacks Rank #3. The company is scheduled to release results on Jan 31.

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