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Abbott Banks on EPD, Nutrition Growth to Beat Coronavirus Woes

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On Sep 8, we issued an updated research report on Abbott Laboratories (ABT - Free Report) . The company has been delivering consistent solid organic growth in the Established Pharmaceuticals Division (EPD) and Diabetes segments. The stock currently carries a Zacks Rank #3 (Hold).

Over the past six months, Abbott has been outperforming the industry. The stock has gained 35.2% compared with the industry's 15.2% rise.

The company exited the second quarter of 2020 with better-than-expected earnings and revenue numbers. Despite the implementation of shelter-in-place restrictions, which led to the postponement of elective medical procedures, in the reported quarter, Abbott saw steady improvements in both testing and procedure volumes across its hospital-based businesses. At the same time, the company’s consumer-facing businesses, which include diabetes care, nutrition, and established pharmaceuticals continued to perform well leveraging on the pandemic scenario, collectively growing more than 9% in the first half of the year.

Within Adult Nutrition, the company registered strong U.S. and international growth of Ensure, the market leading complete and balanced nutrition brand. This has led to global adult nutrition growth of around 7.5%. In pediatric nutrition, despite challenging conditions in Greater China, sales were led by global growth of Pediasure and Pedialyte, the company’s oral rehydration brand.

Within EPD, through the first half of the year, the company achieved mid-single-digit sales growth, and expects a similar growth profile for the second half of the year. Within medical devices, the company saw steady improvements in procedure volumes across its cardiovascular and neuromodulation portfolio. Encouragingly, at the end of June, procedure volumes rebounded to approximately 90% of pre-COVID levels on average in the United States. This represents a significant recovery compared to procedure activity at the beginning of the second quarter.

Within Diabetes Care, Abbott has been riding high on a healthy growth graph. The company has also been in the limelight for developments in its flagship, sensor-based continuous glucose monitoring system, FreeStyle Libre System. In the second quarter, the company obtained FDA approval for Libre 2 as an iCGM, which sets a new standard for accuracy and performance and includes a new pediatric use indication. The company expects Freestyle Libre 2 to be launched in the next few weeks at the same price as the currently available Freestyle Libre 14-day system, in line with its commitment to make Libre affordable and accessible to all.

Within Diagnostics, sales grew 7% in the quarter. Testing volumes in the underlying diagnostic business, which excludes COVID-19 tests, rebounded to approximately 90% of pre-COVID levels by the end of the second quarter. Over the first half of the year, Abbott has developed and launched several COVID-19 tests across its testing platform for both laboratory and rapid point-of-care settings. Till the second-quarter earnings call, the company had sold about 40 million tests across all its platforms globally.

On the flip side, beginning in February, as many countries started to implement quarantine restrictions, Abbott saw sharp declines in its cardiovascular device procedures and routine core laboratory diagnostic testing volumes in that country. At the start of the second quarter too, many areas of the world were under shelter-in-place restrictions, which led to the postponement of elective medical procedures and sharp declines in routine diagnostic testing.

Within EPD, sales were relatively flat. In June and July, the company saw the virus spread impact market demand in certain emerging countries, such as Russia, Brazil, and Colombia. Abbott’s Core Laboratory Diagnostics sales were significantly down in the reported quarter affected by lower demand for routine testing in the past few months. In fact, hospital-based elective cardiovascular, EP ablation and neuromodulation procedures saw a sharp decline in demand.

Key Picks

Some better-ranked stocks from the broader medical space include Hologic, Inc. (HOLX - Free Report) , Thermo Fisher Scientific Inc. (TMO - Free Report) and Globus Medical, Inc. (GMED - Free Report) .

Hologic’s long-term earnings growth rate is estimated at 15.5%. It currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Thermo Fisher’s long-term earnings growth rate is estimated at 15%. It currently carries a Zacks Rank #2 (Buy).

Globus Medical’s long-term earnings growth rate is estimated at 13%. The company presently carries a Zacks Rank #2.

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