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Can Abbott Laboratories (ABT) Pull a Surprise in Q2 Earnings?

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Abbott Laboratories (ABT - Free Report)  is scheduled to report second-quarter 2017 results before the opening bell on Jul 20. Last quarter, the company’s earnings exceeded the Zacks Consensus Estimate remarkably by 11.63%. Also, the company posted an average beat of 4.67% in the trailing four quarters. Let’s sneak a peek how things are shaping up prior to this announcement.

Factors at Play

Abbott has been on a healthy growth trajectory in Established Pharmaceuticals Division (EPD) business, delivering encouraging operational sales growth in the trailing few quarters. Major part of this growth was stimulated by a series of strategic actions, including the sale of Abbott’s developed market businesses along with the acquisitions of CFR Pharmaceuticals in Latin America and Veropharm in Russia. 

However, the absence of any substantial advancement in this division in the recent past has compelled the company to maintain low expectations at high single-digit growth in the yet-to-be reported quarter.

Abbott Laboratories Price and EPS Surprise


Abbott Laboratories Price and EPS Surprise | Abbott Laboratories Quote

On a positive note, with a strong market position in several geographies, including China, Latin America and several markets in Southeast Asia, EPD is well positioned for sustained above-market growth in some of the largest and fastest growing pharmaceutical markets in the world.

Abbott initiated the implementation of its operational model within the EPD space in the first quarter, as planned. Per the model, the company will focus on selling its highly diversified line of products in core therapeutic areas to treat local health conditions. This in turn will allow the company to widen its customer base by creating unique relationship with physicians, retailers and pharmacies. Also, Abbott plans to strengthen its developmental capabilities by expanding its EPD innovation center in India.

There have been a slew of developments within medical device as well. The market is upbeat about Abbott’s FreeStyle Libre Flash Glucose Monitoring System prospects post the receipt of full or partial reimbursement by the French Health Ministry in May 2017.

At this platform, the company also announced Health Canada License for FreeStyle Libre in Jun 2017.

Notably, all these developments are expected to drive the company’s traction in the Diabetes Care segment, which saw sales growth of 20.2% in the last reported quarter on continued consumer acceptance of FreeStyle Libre internationally.

This apart, the market is bullish on Abbott’s Confirm Rx Insertable Cardiac Monitor after it received CE Mark in May 2017.  Post-approval, the product has seen strong consumer acceptance with implants taking place in 10 countries across Europe. In May 2017, the company announced CE Mark for its Tacticath Contact Force Ablation Catheter which is another key positive.

Continuing with its trend of extensive research and new product developmet, the company, launched two science-based nutrition drinks for better recovery from surgeries – Ensure Surgery Immunonutrition Shake and EnsurePre- Surgery Clear Nutrition Drink – in Apr 2017.

We are also bullish about the ongoing synergies from the acquisition of St. Jude Medical on Jan 4. The comprehensive combined portfolio is quite promising..

Notably, Abbott projects annual pre-tax synergies of $500 million by 2020, including revenue expansion opportunities as well as operational and SG&A efficiencies.

Overall, for the second quarter of 2017, the company forecasts adjusted earnings per share of 59 cents to 61 cents. Comparable operational sales growth for the quarter is projected in low to mid-single digits.

Earnings Whispers

Our proven model does not conclusively show that Abbott is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here, as you will see below.

Zacks ESP:  Earnings ESP for Abbott is 0.00% since both the Most Accurate estimate and the Zacks Consensus Estimate are at 60 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Abbott has a Zacks Rank #2, which increases the predictive power of ESP. However, the company’s 0.00% ESP makes surprise prediction difficult.

We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are a few companies you may want to consider as our proven model shows that they have the right combination of elements to post an earnings beat this quarter:  

Thermo Fisher Scientific Inc. (TMO - Free Report) has an Earnings ESP of 0.44% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Dextera Surgical Inc. has an Earnings ESP of +9.09% and a Zacks Rank #2.

Telefex Incorporated (TFX - Free Report) has an Earnings ESP of +1.06% and a Zacks Rank #2.

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