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Can EPD & Medical Devices Drive Abbott's (ABT) Q4 Earnings?

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Abbott (ABT - Free Report) is slated to report fourth-quarter 2017 results, before the market opens on Jan 24. Last quarter, the company delivered a positive earnings surprise of 1.5%. Moreover, Abbott has delivered positive earnings surprises in the trailing four quarters, with an average beat of 4.5%. Let's see how things are shaping up for this announcement.

Key Catalysts

Similar to the prior quarter, Abbott is expected to gain from strong performance by the Established Pharmaceuticals Division (“EPD”) business, which has been recording operational sales growth in the last few quarters. Major part of this growth was stimulated by a series of strategic actions, including Abbott’s sale of developed market businesses along with acquisitions of CFR Pharmaceuticals in Latin America and Veropharm in Russia. Accordingly, the Zacks Consensus Estimate for EPD revenues of $1.09 billion shows a rise of 11.2% from the year-ago quarter.

Apart from Russia and Latin America, the company also continues to expect strong growth in EPD in the upcoming quarters, particularly in China, on the back of a strong market position and competitive advantage. Also, as expected, third-quarter sales in India were driven by purchasing patterns following the implementation of a new Goods and Services Tax system that dented second-quarter sales in the country. Thus, the Zacks Consensus Estimate for EPD revenues from key emerging markets of $867 million indicates a rise of 11.6% from the year-ago quarter.

We are also upbeat about the Medical Devices business, which has been on a healthy growth trajectory over the past few quarters. Abbott has been hogging the limelight for developments in the flagship, sensor-based continuous glucose monitoring (CGM) system — FreeStyle Libre System. Historically, the company has been witnessing solid growth in the global Diabetes Care business, primarily on the back of contributions from FreeStyle Libre. Following the FDA approval in September 2017 for the FreeStyle Libre Flash glucose monitoring system, Abbott achieved another major milestone after the U.S. Centers for Medicare & Medicaid Services (CMS) granted FreeStyle Libre approval for Medicare coverage.

Abbott Laboratories Price and EPS Surprise

 

 

Moreover, last September, the company announced the receipt of national reimbursement for FreeStyle Libre in the U.K., marking another milestone for the company. With these positives, Abbott’s FreeStyle Libre system stands partially or fully covered in 21 countries, including France, Germany and Japan. Moreover, the Zacks Consensus Estimate for Diabetes Care revenues of $391 million indicates a rise of 26.1% from the year-ago quarter.

This apart, the market is bullish on Abbott’s developments in other businesses which form part of the Medical Devices segment. In August 2017, the company announced FDA approval for Full MagLev HeartMate 3 Left Ventricular Assist Device (LVAD) which is expected to boost top-line contributions from the Cardiovascular and Neuromodulation sub-segment. This segment has been the highest contributor to total Medical Devices revenues historically. The Zacks Consensus Estimate for Cardiovascular and Neuromodulation revenues of $2.24 billion indicates a rise of 0.9% from the sequential quarter.

Overall, fourth-quarter total revenues are projected at $7.37 billion, up 38.3% from the prior-year quarter.

Here is what our quantitative model predicts:

Abbott does not have the right combination of two main ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

Zacks ESP: The Earnings ESP for ResMed is -0.62%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Abbott carries a Zacks Rank #3, which increases the predictive power of ESP. However, we also need to have a positive ESP to be confident of a positive earnings surprise.

The Zacks Consensus Estimate for earnings of 73 cents reflects a 12.3% rise on a year-over-year basis.

Stocks Worth a Look

Here are a few medical stocks worth considering as they have the right combination of elements to post an earnings beat this quarter.

Bio-Rad Laboratories, Inc. (BIO - Free Report) has an Earnings ESP of +4.45% and a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Myriad Genetics, Inc. (MYGN - Free Report) has an Earnings ESP of +0.42% and a Zacks Rank #3.

Henry Schein, Inc. (HSIC - Free Report) has an Earnings ESP of +0.35% and a Zacks Rank #3.

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