Abbott – Recovered and Making New Highs

Abbott Laboratories is a leading global healthcare and research company having a presence in more than 160 countries. Over 14 million people around the world use Abbott’s medicines every day. With over 130 years in business, Abbott has become the worldwide leader in adult nutrition and blood screening. It enjoys a leadership position in virtually every market it serves.

Abbott owns a leading portfolio of innovative solutions in diabetes, cardiovascular, and neuromodulation. FreeStyle Libre, MitraClip, Alinity, Similac, PediaSure are its major brands. The company commands a large market share position in diabetic care and cardiovascular disease treatments in the developed markets. Abbott derives nearly 59% of its revenue from developed markets and 41% from emerging markets. The U.S. accounts for ~35% of total sales. Abbott also enjoys leading market share positions in India, Russia, and across Latin America – with #1 positions in Chile, Colombia, and Peru.

Abbott has four reportable segments – Established Pharmaceuticals (14% of 2019 sales), Nutritional Products (23%), Diagnostic Products (25%), and Medical Devices (38%). Its portfolio consists of more than 1500 products across multiple therapeutic areas. Abbott is the world’s leading company in glucose testing for diabetes.

Investment Data

Revenue Growth & Market Exposure

Abbott is trusted worldwide for its quality products and innovative medicines. The company enjoys a leadership position across multiple dimensions of the healthcare business. FreeStyle Libre, Abbott’s glucose-monitoring system has become a billion-dollar product. Abbott also has leading market shares in other critical areas of medicine such as coronary stents, transcatheter mitral valve repair, left ventricular assist devices, spinal cord stimulation, branded generic medicines, adult nutrition, etc. Its medical devices are used in a wide variety of procedures. 

Abbott has a strong focus on emerging economies with about 40% of its revenues coming from these markets. The company is in a good position to benefit from the improving lifestyles and rising demand for healthcare in these economies. Abbott continues growing both organically as well as through acquisitions. The strategic acquisitions of St. Jude Medical and Alere strengthened its leadership position across the spectrum of cardiac-care specialties, neuromodulation, and point-of-care diagnostic testing.

Abbott is an innovative company. The company has been at the forefront of innovation, developing ground-breaking glucose sensing technology, innovative devices for chronic pain, and novel diagnostics solutions. More than 50% of its sales are derived from products and businesses that are launched in the last six years. Abbott is using technology and offering patients an intuitive therapy experience through its Infinity and Proclaim platforms. Abbott continues to advance its pipeline and strengthen its long-term growth platforms and it spent more than 7% of its sales on R&D activities in the latest quarter. 

Abbott’s leading position in diabetic care and cardiovascular disease treatments provide a solid ground to gain from the rising trend of increasing heart ailments and diabetic diseases in the developed markets. The company’s impeccable reputation, complementary portfolio of businesses, and a strong presence in the world’s fastest-growing markets provide a deep competitive moat to its business. 

Abbott continues to collaborate with leading healthcare companies to develop ground-breaking healthcare products. The company has successfully developed and launched three diagnostic tests for COVID-19, two for the laboratory setting, and one for rapid point-of-care testing. Its business is highly diversified by product and geography with each of them generating a significant portion of revenue. Other than COVIID-19 test kits, Abbott is witnessing significant growth in multiple other areas. FreeStyle Libre, MitraClip, Alinity are its top-line products. Abbott’s sales grew by nearly 4.5% on an organic basis in Q1. Freestyle Libre, in diabetes care, continued to add new users at a strong and steady rate throughout the quarter and registered a sales growth of 60%. The glucose-monitoring system now has approximately two million users worldwide.

Given the uncertainties regarding the COVID-19 pandemic, Abbott suspended its previously issued annual guidance for sales and EPS. Prior to the lockdown, the company had guided organic sales growth of 7% to 8% and GAAP diluted EPS of $2.35 to $2.45 for FY 2020.

Dividends

Since 1973, Abbott has been increasing its dividends every consecutive year making it a member of the S&P 500 Dividend Aristocrats Index. The company has paid dividends for 96 years in a row and raised it for 48 consecutive years. The company’s commitment to its shareholders can be gauged by the fact that its total 3-year shareholder return stood at more than 140%. Abbott returned $2.2 billion to shareholders last year.

The average dividend per share growth was nearly 15% CAGR per year over the last five years and Abbott recently raised its dividend by 12.5%. It has an average dividend yield of 1.6% and a high payout ratio of 71%. Abbott is not the high dividend payer it used to be. AbbVie, from the spinoff, is where the dividend went since it has a much higher yield. Since the spinoff, Abbott has maintained a dividend yield of around 2.0% or lower. However, Abbott has an impressive dividend track record and has increased its dividends even during tough economic times including the Great Recession. 

Abbott is in a good position to gain from its acquisitions which are its major growth drivers. Its St. Jude Medical acquisition in 2017 has created a medical device leader with #1 or #2 positions in most high growth cardiovascular markets. These acquisitions (St. Jude & Alere) resulted in an additional debt of $27.9 billion to the company. Abbott ended the first quarter with approximately $3.7 billion of cash and short term investments.

Abbott is highly diversified by business mix, regions, and customers which helps it to remain immune from volatility in any particular market/ segment. The company operates in a highly recession-proof industry. It engages in creating life-changing technologies that help people live longer and healthier lives. With over 130 years of innovative work, Abbott today has built one of the strongest new-product pipelines in the medical device industry. It is almost impossible for any new player to replicate Abbott’s scale and trust. Huge patent and license portfolio and strong regulations are other entry barriers.

Diabetic care and cardiovascular diseases have gradually become more common in both developed and emerging markets and are expected to increase further with rising levels of obesity and an aging population. Abbott will benefit from its strong brand recall and growing healthcare needs worldwide.

Competition

Abbott faces intense competition in the U.S and other leading markets. Abbott competes with the likes of Johnson & Johnson, Becton, Dickinson & Co, and Cardinal Health Inc. Johnson & Johnson is one of the biggest healthcare companies having an extensive global presence. Becton, Dickinson & Co is a leading global medical technology company and Cardinal Health is a global, integrated healthcare services and products company.

Bottom Line

Abbott is a good investment option for risk-averse investors. The coronavirus effect is also limited given its highly diversified business model. Though the company might have faced some temporary losses in other diagnostic tests, Abbott’s three testing kits have proven to be highly effective in virus testing so far. The company is all set to launch a fourth one soon. As coronavirus cases continue to rise, mass testing is the need of the hour. The company has good sales and dividend track record. Abbott is a shareholder-friendly company and should continue its dividend growth streak in the future as well.

DISCLOSURE: Please note that I may have a position in one or many of the holdings listed. For a complete list of my holdings, please see my Dividend Portfolio.

DISCLAIMER: Please note that this blog post represents my opinion and not an advice/recommendation. I am not a financial adviser, I am not qualified to give financial advice. Before you buy any stocks/funds consult with a qualified financial planner. Make your investment decisions at your own risk – see my full disclaimer for more details.