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EPD Expansion Supports Abbot Stock, Macro Issues Prevail

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Abbott's (ABT - Free Report) diversified business portfolio is well-positioned to drive momentum. However, the international business environment continues to be challenging globally. The stock carries a Zacks Rank #3 (Hold).

Factors Driving ABT Shares

Abbott continues to expand its Diagnostics business foothold (23% of the total revenues in the fourth quarter of 2024). Over the past few quarters, the company has been witnessing increased global demand for routine diagnostics (excluding COVID-19  testing sales). In the fourth quarter of 2024, rapid diagnostics, excluding COVID-19 testing sales, increased 16% year over year. Core Laboratory Diagnostics' growth of 4% was driven by continued strong demand for Abbott’s immunoassay, clinical chemistry, hematology and blood screening testing panels.

Abbott’s Diabetes Care business continues to benefit from the growing sales of its flagship, sensor-based continuous glucose monitoring system, FreeStyle Libre. In a relatively short span, FreeStyle Libre has achieved global leadership among continuous glucose monitoring (CGM) systems for both Type 1 and Type 2 users.

In the fourth quarter, in Diabetes Care, sales of CGM exceeded $1.8 billion and grew 23%. For full-year 2024, sales of CGM were approximately $6.5 billion and grew 22% from 2023. This included growth of 27% in the United States.

Within Abbott’s Established Pharmaceuticals Division (EPD) business, the company is also strategically progressing with its advancement in biosimilars. Abbott, leveraging on its leading presence in emerging markets, is enjoying a unique opportunity to scale a licensing model that is capital-efficient and can bring access to these life-changing medicines to the emerging market population. The first round of commercialization is on track for 2025. The company is highly optimistic about this initiative, considering the fact that biosimilars represent the highest growth segment in the branded generic pharmaceutical market.

Over the past three months, shares of ABT have gained 21.3% compared with the industry’s 5.4% improvement. The company’s consistent efforts to expand in high-growth areas, as well as its array of new product launches are expected to help the stock continue its uptrend in the coming days.

Concerns Remain for Abbott

Foreign exchange is a major headwind for Abbott because a considerable percentage of its revenues comes from outside the United States. The strengthening of the euro and some other developed market currencies has been hampering the company’s performance in the international markets. In the fourth quarter of 2024, foreign exchange had an unfavorable year-over-year impact of 1.4% on sales.

The challenging macroeconomic scenario in the form of the ongoing complex geopolitical situation globally, specifically where Abbott operates, is driving a higher-than-anticipated increase in expenses in terms of raw materials and freight. These could also result in broader economic impacts and security concerns, affecting the company’s business in the upcoming months. Industrywide, it has been seen that the deteriorating global economic environment is reducing demand for several MedTech products, resulting in lower sales and lower product prices while increasing the cost of goods and operating expenses of the businesses of the MedTech companies.

In the fourth quarter, Abbott incurred an 8.5% increase in the cost of products sold (excluding amortization expense). The gross margin contracted 55 basis points to 55%. Selling, general and administration expenses were up 6.7% year over year, resulting in a 43-basis-point contraction in adjusted operating margin.

Key Picks

Some better-ranked stocks in the broader medical space are Hims & Hers Health (HIMS - Free Report) , Inspira Medical Systems (INSP - Free Report) and Cardinal Health (CAH - Free Report) . Each of these carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Estimates for Hims & Hers Health’s 2025 earnings per share have jumped 34.6% to 70 cents in the past 30 days. Shares of the company have surged 186.2% in the past year against the industry’s 11.2% fall. HIMS’ earnings surpassed estimates in two of the trailing four quarters, matched in one and missed on another occasion, the average surprise being 40.4%.

Inspira shares have dipped 2.3% in the past year. Estimates for the company’s 2025 earnings per share have increased 6.4% to $2.16 in the past 30 days. INSP’s earnings beat estimates in each of the trailing four quarters, the average surprise being 332.5%. In the last reported quarter, it posted an earnings surprise of 55.4%.

Estimates for Cardinal Health’s fiscal 2025 earnings per share have increased 14.7% to $7.94 in the past 30 days. Shares of the company have jumped 12.8% in the past year against the industry’s 2.1% fall. CAH’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 9.6%. In the last reported quarter, it delivered an earnings surprise of 10.3%.

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