Abbott (NYSE:ABT) is scheduled to report its Q2 2021 results on Thursday, July 22. We expect Abbott to report revenues and earnings above the consensus estimates, driven by continued growth in diagnostics business, along with a rebound in demand for medical devices. We expect the company to navigate well based on these trends over the latest quarter, and ABT stock to rise in the near term. Trefis’ forecast indicates that Abbott’s valuation is $132 per share, which is 11% higher than the current market price of around $119. Our interactive dashboard analysis on Abbott’s Pre-Earnings has additional details.
(1) Revenues expected to be above the consensus estimates
Trefis estimates Abbott’s Q2 2021 revenues to be around $9.85 Bil, compared to the $9.69 Bil consensus estimate. Abbott in Q2 2020 saw a significant decline in medical devices revenue, due to deferment of elective surgeries given the spread of Covid-19. Now that nearly half of the U.S. population is fully vaccinated, and on the international front, most of the countries have undertaken large-scale vaccination programs, the healthcare institutions now have more resources to address the surgeries that were postponed earlier, and people are also more confident heading out, compared to the lockdowns in Q2 last year, implying a rebound for Abbott’s medical devices business. In fact, Abbott’s medical devices sales were also up 13% in Q1 this year.
Looking at the company’s diagnostics business, the sales are expected to continue to remain very high in Q2 as well, after seeing a massive 120% rise in Q1 of this year. This can be attributed to high demand for Covid-19 testing. However, now that the Covid-19 vaccination rate is on a rise, the overall demand for testing is expected to come down over the coming quarters, and it will impact the overall sales growth of the company’s diagnostics business in the quarters to come. This factor was also responsible for a 10% drop in ABT stock a couple of months back. Our dashboard on Abbott Revenues offers more details on the company’s segments.
2) EPS likely to top the consensus estimates
Abbott’s Q2 2021 adjusted earnings per share (EPS) is expected to be $1.07 per Trefis analysis, 5% above the consensus estimate of $1.02. Abbott’s adjusted net income of $2.4 Bil in Q1 2021 reflected a large 2x growth from its $1.2 Bil figure in the prior-year quarter. This can be attributed to higher revenues and over 750 bps rise in net margins. The company’s operating expenses, including R&D and SG&A grew at a slower pace compared to the revenue growth. This trend is expected to continue in Q2 as well, bolstering the overall earnings growth. For the full-year, we expect the adjusted EPS to be higher at $4.55 compared to $3.67 in 2020.
(3) Stock price estimate 11% higher than the current market price
Going by our Abbott’s Valuation, with an EPS estimate of around $4.55 and a P/E multiple of around 29x in 2021, this translates into a price of $132, which is 11% above the current market price of around $119. At current levels of $119, Abbott is trading at 26x its expected EPS of $4.55 in 2021, and the 26x figure compares with levels of 30x seen as recently as late 2020, and 27x seen in late 2019, implying there is more room for growth for ABT stock.
Note: P/E Multiples are based on Share Price at the end of the year and reported (or expected) Adjusted Earnings for the full year
While ABT stock may be undervalued, 2020 has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how counter-intuitive the stock valuation is for Pfizer vs Merck.
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