Yahoo Finance Abbott Stock Hurt by Macroeconomic Issues & FX Headwind
Abbott ABT is facing a challenging business environment globally. Unfavorable foreign exchange impact continues to impede growth. The stock carries a Zacks Rank #4 (Sell) currently.
Factors Weighing on Abbott
A challenging macroeconomic scenario in the form of the ongoing complex geo-political situation globally, specifically where Abbott operates, is driving higher-than-anticipated increases in expenses in terms of raw materials and freight. This 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 second quarter, Abbott incurred a 2.7% increase in the cost of products sold (excluding amortization expense). Selling, general and administration expenses were up 7.2% year over year, resulting in a mere 18-bps improvement in operating margin to 20.6%.
Further, following the official ending of the public health emergency in May 2023, Abbott is experiencing a continuous decline in COVID testing-related demand. In Rapid Diagnostics, sales decreased 19.8% organically in the second quarter of 2024 due to lower demand for COVID-19 tests. Within Molecular Diagnostics, too, organic sales declined 9.4% year over year.
In the upcoming months too, this year-over-year decline in testing demand is expected to mar Abbott’s overall Diagnostics business sales growth.
Abbott Laboratories Price
Abbott Laboratories price | Abbott Laboratories Quote
Further, 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 second quarter of 2024, foreign exchange had an unfavorable year-over-year impact of 3.5% on sales.
Favorable Factors for ABT
Abbott continues to expand its Diagnostics business foothold (consisting of 21.2% of the total revenues in the second quarter of 2024). Over the past few quarters, the company has witnessed increased demand for routine diagnostics (excluding COVID-19 testing sales), particularly in the United States and internationally.
Within Abbott’s Established Pharmaceuticals Division (EPD) business, its unique branded generics model has been built to focus specifically on key emerging countries where long-term growth in medicines is guaranteed by favorable demographic trends, including increasing populations, growing middle classes, aging populations with the related rise in chronic diseases and an increasing focus on expanding access to healthcare. The year 2023 marked the third consecutive year of double-digit organic sales growth within EPD. Abbott’s EPD sales in the second quarter of 2024 increased 8.1% organically.
Further, 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.
The stock has gained 14.6% in a year but underperformed the industry’s 20.4% rise. Despite several downsides that are impeding the stock’s growth, as the company strategically expands through innovation and deals, we expect further acceleration in the stock price in the coming days.
Key Picks
A few better-ranked stocks in the broader medical space are TransMedics Group TMDX, AxoGen AXGN and OrthoPediatrics KIDS. While TransMedics sports a Zacks Rank #1 (Strong Buy) at present, AxoGen and OrthoPediatrics carry a Zacks Rank #2 (Buy) each. You can see the complete list of today’s Zacks #1 Rank stocks here.
Estimates for TransMedics’ 2024 earnings per share (EPS) have moved up 2.5% to $1.23 in the past 30 days. Shares of the company have soared 156.5% in the past year compared with the industry’s 17.5% growth. TMDX’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 287.50%. In the last reported quarter, it delivered an earnings surprise of 66.67%.
Estimates for AxoGen’s 2024 loss per share have remained constant at 1 cent in the past 30 days. Shares of the company have surged 165.9% in the past year compared with the industry’s 17.6% growth. AXGN’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 96.5%. In the last reported quarter, it delivered an earnings surprise of 200%
Estimates for 2024 OrthoPediatrics’ loss per share have declined to 92 cents from 96 cents in the past 30 days. In the past year, shares of KIDS have lost 0.8% against the industry’s 18.1% growth. In the last reported quarter, KIDS delivered an earnings surprise of 25.81%. Its earnings surpassed estimates in each of the trailing four quarters, the average surprise being 26.81%.
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