There are many reasons to own Abbott Laboratories (NYSE: ABT), but they all boil down to one thing: consistent market-beating returns. A study published by Hendrik Bessembinder, a professor of finance at Arizona State University, found that Abbott is the 11th top-returning stock since 1937 and #1 among healthcare names.
The critical takeaways from the report are time and consistency: the top performers produce slower annual growth than flash-in-the-pan growth stories but do it year in and year out, compounding value over the long term. Value is driven by company growth, cash flow, and capital returns, which, in Abbott's case, include dividends and share repurchases. Abbott stock can also help reduce portfolio risk because its low beta is about 0.7x the S&P 500 (NYSEARCA: SPY).
High-Quality Abbott Stock: Corporate Growth That Pays You to Own It
Abbott Laboratories had a solid Q3, reporting 4.9% growth to outpace the consensus forecast despite the impact of lower COVID-related sales and discontinued business. Organically, ongoing business grew by 8.2% due to strength in the medical device segment. Medical Devices grew by 11.7% reported and 13.3% organic due to a double-digit increase in Structural Heart and Heart Failure and the release of continuous glucose monitors, showing the strength of the diversified portfolio.
Regarding the remaining segments, established Pharmaceuticals grew by 2.7% on a reported basis and 7% organically, offset by reported declines in Nutrition and Diagnostics. Nutrition contracted by 0.3% as reported but grew by 3.4% organically, while Diagnostics declined by 1.3% on a reported basis but grew by 1.4% organically.
Margin news is also solid, sustaining the outlook for balance sheet health and capital returns. The company’s operating and net margin widened slightly compared to the previous year, driving earnings leverage. The operating and net operating earnings are up 12.8% and 14.6%, leaving the adjusted fully diluted EPS at $1.21 or up 6%, with margins forecasted to remain stable in Q4.
Abbott’s guidance is favorable in that revenue targets were reaffirmed, and the mid-point for earnings was raised. The company expects full-year earnings in a range centering on $4.67 versus the $4.66 consensus, which should keep the analysts happy and support the uptrend in share prices.
Abbott Laboratories Capital Return Grows Safely, Drives Value for Shareholders
Abbott Laboratories' capital return is safe and reliable, with a 53-year history of sustained annual increases and a low payout ratio below 50%. The balance sheet is a fortress with no red flags, leaving ample cash flow for R&D, reinvestment, acquisitional cash flow, and share repurchases. Repurchase activity isn’t robust but sufficient to offset dilutive forces and reduce the count annually. Highlights from Q3 include a 0.05% YTD share count reduction and a freshly amended repurchase authorization worth $7 billion or about 3.5% of the market cap before the release.
Analysts' support for Abbott is strong. The trend in calendar Q3 is increasing coverage, improving sentiment, and upward price target revisions. The consensus is a Moderate Buy verging on a Strong Buy with a price target of $125, about 10% above the post-release opening price. The freshest revisions lead to the high-end range, another 10% to 15% above the consensus target, and a new all-time high when reached.
Abbott Slips Into a Buying Opportunity
The price action following the release was tepid, with share prices pulling back slightly. However, analysts and institutions support the market well, so the pullback should result in a buying signal soon. The critical support target is near $115 and will likely be tested. If the market can sustain support above that level, a move to fresh highs is likely before the year’s end. If not, Abbott Laboratories' share price may remain range-bound until more is available.
