Abbott Laboratories (ABT Quick QuoteABT - Free Report) is well-poised for growth in the coming quarters, driven by solid prospects in the core Diagnostics business. The raised 2023 outlook buoys optimism. However, forex woes and lower COVID sales impede growth.

In the past six months, this Zacks Rank #3 (Hold) stock has gained 4.6% compared with 4.8% decline of the industry and a 7.8% rise of the S&P 500 composite.

This renowned provider of a diversified line of healthcare products has a market capitalization of $192.36 billion. The company projects 9% growth for the next five years and expects to maintain its strong performance. Abbott’s earnings surpassed estimates in all of the trailing four quarters, the average surprise being 6.76%.

Let’s delve deeper.

Factors at Play

Strong Prospects Within Core Diagnostics: Abbott is expanding its Diagnostics business foothold (contributing 24% to the company’s total revenues in the third quarter of 2023). In the past few quarters, there has been a decline in demand for Abbott’s rapid diagnostic tests to detect COVID-19. Nevertheless, it is being offset by higher growth across other businesses. In the United States and internationally, Abbott is experiencing increased demand for routine diagnostics. In the United States, Abbott is registering strong growth within the blood transfusion testing business, which is consistently recovering from the impact of lower plasma donations that occurred during the COVID-19 pandemic. Within Rapid Diagnostics, the base business gained from increased demand for respiratory tests in anticipation of an earlier-than-normal start to the flu season in the Northern Hemisphere in the third quarter.

Sales Recovery Within Nutrition: Following the massive setback related to the voluntary recall and production stoppage of certain infant powder formula products manufactured at its facility in Sturgis, MI, last year, Abbott’s Nutrition business has strongly regained its market share since the beginning of 2023.

Per the last update on the third-quarter earnings call, it has now recovered 100% of the lost market share in the U.S. infant formula business. Adult nutrition is also gaining momentum, backed by the strong global sales performance of Abbott's complete and balanced nutrition brands, Ensure and Glucerna.

Upbeat Guidance: Full-year adjusted earnings (excluding specified items of $1.28 per share) are expected in the range of $4.42-$4.46 (previously $4.30-$4.40).

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Abbott projects full-year 2023 organic sales growth, excluding COVID-19 testing-related sales, in the low double digits (unchanged from the previous outlook) and COVID-19 testing-related sales of around $1.5 billion (earlier $1.3 billion).

Downsides

Foreign Exchange Translation Impacts Sales: Foreign exchange is a major headwind for Abbott due to a considerable percentage of its revenues coming from outside the United States. The strengthening of the euro and some other developed market currencies has constantly been hampering the company’s performance in the international markets.

In the third quarter, foreign exchange had an unfavorable year-over-year impact of 1.4% on sales.

Declining COVID Testing Dents Growth: During the COVID-19 public health emergency, Abbott’s diagnostic tests witnessed stupendous revenue growth backed by increasing demand for testing and government-enacted favorable policies to expedite or promote access to healthcare to slow down or stop the spread of the virus. Through the last few months of 2022 and following the official ending of the public health emergency in May, Abbott is experiencing a persistent decline in COVID testing-related demand. In the third quarter of 2023, Abbott’s Rapid Diagnostics sales decreased 59.2% from the year-ago period due to lower demand for COVID-19 tests.

Estimate Trends

In the past 90 days, the Zacks Consensus Estimate for earnings has moved up from $4.40 to $4.44.

The Zacks Consensus Estimate for the company’s 2023 revenues is pegged at $40.01 billion, suggesting an 8.4% decline from the year-ago quarter’s reported number.

Key Picks

Some better-ranked stocks in the broader medical space are DaVita Inc. (DVA Quick QuoteDVA - Free Report) , HealthEquity, Inc. (HQY Quick QuoteHQY - Free Report) and Integer Holdings Corporation (ITGR Quick QuoteITGR - Free Report) .

DaVita, sporting a Zacks Rank #1 (Strong Buy), has an estimated long-term growth rate of 17.3%. DVA’s earnings surpassed estimates in each of the trailing four quarters, with the average surprise being 36.6%. You can see the complete list of today’s Zacks #1 Rank stocks here.

DaVita’s shares have gained 38.2% compared with the industry’s 9.4% rise in the past year.

HealthEquity, carrying a Zacks Rank of 2 at present, has an estimated long-term growth rate of 27.5%. HQY’s earnings surpassed estimates in each of the trailing four quarters, with the average being 16.5%.

HealthEquity has gained 8.2% against the industry’s 6.3% decline in the past year.

Integer Holdings, carrying a Zacks Rank of 2 at present, has an estimated long-term growth rate of 15.8%. ITGR’s earnings surpassed estimates in each of the trailing four quarters, with the average surprise being 11.9%.

Integer Holdings’ shares have rallied 44.9% compared with the industry’s 3.7% rise in the past year.