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Abbott's (ABT) Base Volume Rebounds, Lowered View Concerns

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Abbott Laboratories (ABT - Free Report) has been delivering consistent organic growth in the Established Pharmaceuticals Division (EPD) and Diabetes segments. However, slow growth in the pediatric nutrition business is a challenge. The stock currently carries a Zacks Rank #3 (Hold).

Over the past year, Abbott has been outperforming the industry it belongs to. The stock has gained 22.8% compared with the industry’s 10.8% growth. The company posted better-than-expected earnings and revenue numbers for the second quarter of 2021. Abbott reported more that 100% adjusted earnings per share growth and 35% organic sales growth for the quarter. Excluding sales from COVID-19 testing business, organic sales grew nearly 11.5% in the second quarter driven by strong sales growth across all four of the company’s major businesses, including double-digit growth in Established Pharmaceuticals, Nutrition and Medical Devices.

In the second quarter, within Adult Nutrition, the company reported mid-teen growth including more than 20% growth internationally. Ensure (adult complete and balanced nutrition brand) and Glucerna (diabetes nutrition brand) once again reported robust sales. Within pediatric nutrition, sales improved 4.5% led by growth of nearly 9% in the United States. Sales of Pedialyte, the global rehydration brand, grew in strong double digits, driven by the recently launched products and increased investments in direct consumer promotion.

Within Diagnostics, sales increased 55%, led by growing demand for Abbott’s portfolio of COVID-19 tests as well as improvement in the base business. During the quarter, underlying Diagnostics business grew strongly driven by improving routine diagnostic testing as healthcare systems continue to recover from the pandemic and continued rollout of Alinity platforms.

Within Medical Device, sales grew nearly 45% led by strong growth in Structural Heart, Electrophysiology, Heart Failure and Diabetes Care. The Diabetes Care business has been in the limelight for developments in its flagship, sensor-based continuous glucose monitoring system, FreeStyle Libre. In Structural Heart, the company achieved the highest number of MitraClip procedures ever in the second quarter, including a record number of procedures in the month of June.

Within EPD, sales grew over 15% year over year led by double-digit growth in India, China, Russia and Brazil. While Abbott continued to see elevated COVID-19 case levels across several emerging markets, the business is executing strongly banking on greater patient access to its branded generic medicines.

On the flip side, with the uptake in vaccination and steady decline in new cases, there has been a significant reduction in COVID-19 testing sales for the company over the past few months. In June 2021, Abbott lowered its 2021 guidance on considerable reduction in recent and projected COVID-19 diagnostic testing demand. Full-year GAAP earnings per share are expected in the band of $2.75 to $2.95, down from the earlier projection of at least $3.74. Adjusted earnings from continuing operations are now expected in the range of $4.30-$4.50 per share, down from the earlier projection of at least $5 per share.

According to the company, significant reductions in the number of COVID-19 cases in the United States and other major developed countries, accelerated rollout of COVID-19 vaccines globally and the latest U.S. health authority guidance and restrictions on testing for fully vaccinated individuals hurt sale growth considerably through the second quarter.

Key Picks

A few better-ranked stocks from the broader medical space are Envista Holdings Corporation (NVST - Free Report) , BellRing Brands, Inc. (BRBR - Free Report) and Henry Schein, Inc. (HSIC - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of Zacks #1 Rank (Strong Buy) stocks here.

Envista Holdings has an estimated long-term earnings growth rate of 26%.

BellRing Brands has an estimated long-term earnings growth rate of 22%.

Henry Schein has a projected long-term earnings growth rate of 14%.