By Kari McMahon
Abbott Laboratories, a medical devices and health care company established in 1888, is one of the few companies equipped to face uncertainty. Now, Abbott may be facing its biggest challenge yet: an economic and health crisis combined.
Over the last 132 years, Abbott, located in Lake Bluff, Illinois, has overcome many obstacles. When the stock market crashed in 1929 and the U.S. entered the Great Depression, Abbott listed its stock on the New York Stock Exchange and continued to expand. During the AIDS epidemic, which began in 1981, Abbott rose to the challenge and received approval for the first licensed test to identify HIV in the blood. A year after the Great Recession, in 2010, Abbott became the largest pharmaceutical company in India.
Now Abbott’s biggest challenge is tackling the global impact of the coronavirus. On Jan. 19, the U.S. had its first outbreak of the coronavirus, and in the following months, cases have continued to rise. The total number of Americans who have died from COVID-19 is 112,967 as of June 11, according to the Centers for Disease Control and Prevention.
Abbott is on the front lines in the battle against COVID-19, providing essential products to hospitals around the world while also leveraging its research and development capabilities to create products to aid in the fight against the coronavirus.
So far, Abbott has launched three coronavirus tests: a laboratory test to detect the coronavirus; a portable rapid testing system, Abbott ID NOW, which can detect coronavirus within five minutes; and an antibody test.
Abbott’s stock price closed at $87.78 on June 11, toward the top end of the company’s 52-week range. The stock’s 52-week high of $100 was on April 20 and its low of $61.61 occurred on March 23. The news of Abbott’s testing capabilities, combined with a positive outlook from the company’s first-quarter earnings call on April 16, has contributed to the increase in stock price over the last month.
“The underlying fundamentals of our business remains strong and our manufacturing and supply chain have been highly resilient,” said Robert Ford, CEO and president of Abbott, on the company’s earnings call.
Ford, an employee at Abbott since 1996, replaced Miles White as CEO on March 31. He oversees 107,000 employees across 160 countries. White remains Abbott’s executive chairman.
“As COO Robert Ford prepares to take the helm as CEO following Miles White’s retirement, we believe his strategy for the future mirrors a similar strategy currently held,” said William Blair and Company LLC analyst Margaret Kaczor, who has an outperform rating for Abbott, in a research note on Jan. 22.
Kaczor said she expects Ford will continue to execute a strategy that expands Abbott’s underutilized growth opportunities, while also continuing to leverage its bottom line.
Abbott posted revenues of $7.7 billion for the first quarter, which beat the consensus estimate of $7.4 billion and was a 2.5% increase compared to the $7.5 billion revenues a year earlier. Meanwhile, Abbott’s net income fell to $564 million, or 31 cents a diluted share, from $672 million, or 38 cents a diluted share, a year earlier.
On the day of earnings call, Abbott suspended its previously announced 2020 guidance because of uncertainty around the duration and impact of the pandemic.
Some analysts on the call raised concerns about the long-term impact of delayed elective procedures on Abbott’s core business model, which covers four sectors: diagnostics, nutrition, pharmaceuticals and medical devices. Ford said the loss of revenues from procedures could potentially be offset by continued demand for coronavirus testing during the outbreak.
Following the call, Matt Miksic, a Credit Suisse Group AG analyst, reiterated an outperform rating for Abbott and increased his 52-week price target to $106 from $95.00.
“We view this wave of new tests as a significant new growth driver for [Abbott] over the next 2-3 years and expect consensus estimates and growth expectations to rise accordingly in the coming months,” Miksic said in a research note on April 17.
However, on May 12, New York University released a study that found Abbott’s ID NOW test had low sensitivity, which meant the test was not capturing some positive results, and high false negative rates. The study still has not yet been peer reviewed, which is standard practice in the medical industry. On May 14, the Food and Drug Administration published a statement alerting the public about the potential false negatives, and Abbott’s share price dropped 1.4% that same day closing at $91.78.
“Headlines and a comment from the FDA have raised concerns over [Abbott’s] COVID-19 ID NOW rapid test, putting pressure on the stock,” Miksic said in a research note on May 15. “We view the pressure as overblown and continue to see significant upside for [Abbott’s] diagnostics franchise.”
Abbott’s strong balance sheet has contributed to the company’s optimistic long-term outlook. Its cash position and access to credit equips the company with the ability to handle multiple shocks in coming months, said Robert Funck Jr., Abbott’s chief financial officer, on the earnings call.
“We’ve got strong cash position here toward the end of the quarter, close to $4 billion,” Ford said. “We have access to credit facilities, and we’ve got businesses that are strong cash flow generators and that’s going to be important as we go forward.”
Even with the strong balance sheet, Abbott does not intend to leverage its current position for mergers and acquisitions but will instead look to its existing portfolio for opportunities during the pandemic, Ford said.
“In terms of the messaging on the most recent call [around mergers and acquisitions], it wasn’t a change,” said Dylan Haas, associate analyst at Stifel Financial Corp, in an interview. “We view it positively that they have their critical growth driving products as having a lot of room to run and investing behind those.”
Abbott has a vast product portfolio and seen particular success with its glucose monitoring system, which had a first quarter year-over-year sales increase of 62.5%. The system is being offered to hospitalized patients with COVID-19, so health care workers can monitor glucose levels from afar, which helps minimize exposure to the coronavirus.
The MitraClip, a less invasive treatment option for mitral valve repair, has also seen success. In a report released on May 7, Stifel analyst Rick Wise said he was encouraged by the comments from a cardiologist that MitraClip would increasingly be used in a post COVID-19 world due to its minimally-invasive benefits. Wise continues to have a buy rating on the stock and increased his 52-week price target to $108 from $85.
Moving toward a post-COVID-19 world, Kaczor expects Abbott will benefit from robust end-market demand in most segments, a pipeline of new products to gain traction on the back of substantial investments and a strong cash flow to create accretive opportunities, she said in a research note on April 17.