Focus On Diagnostics, Electrophysiology, And Biosimilars Will Enhance Future Market Penetration

Key Takeaways

• Strategic partnerships and innovative product launches are expected to expand market reach and drive significant revenue growth.
  
• Focus on diagnostics and electrophysiology market expansion, along with biosimilar launches, aims to sustain revenue growth and enhance market penetration.
  
• Vulnerabilities in China’s VBP implementation, competitive pressures in nutrition, forex impacts, and legal risks pose challenges to Abbott's revenue and financial stability.

Catalysts

Abbott Laboratories, together with its subsidiaries, discovers, develops, manufactures, and sells health care products worldwide.

• Abbott's strategic partnerships and new product launches, such as the global partnership with Medtronic for continuous glucose monitors and the launch of Lingo, are likely to drive significant revenue growth by expanding their market reach and offering innovative solutions.
  
• Abbott's focus on expanding its diagnostics testing platforms and new account wins is expected to sustain revenue growth through increased adoption and utilization of their diagnostic systems, particularly as they expand their test menus in the Rapid and Point of Care Diagnostics businesses.
  
• With strong growth in the Electrophysiology market and advancements in their product pipeline, including new catheters and cardiac mapping products, Abbott aims to increase market share and drive revenue growth, supported by future FDA approvals which could further enhance earnings.
  
• The expected launch of biosimilars in emerging markets by late 2025 signifies a potential catalyst for revenue growth and increased market penetration in these regions, positively impacting future earnings.
  
• Continued improvements and expansion in operating gross margin, targeted at 75 basis points full-year improvement, indicate a focus on optimizing cost efficiencies, which could increase net margins and contribute to higher future earnings.

Abbott Laboratories Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Abbott Laboratories's revenue will grow by 7.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 13.9% today to 16.0% in 3 years time.
• Analysts expect earnings to reach $8.1 billion (and earnings per share of $4.64) by about December 2027, up from $5.7 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $6.9 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 33.9x on those 2027 earnings, down from 34.5x today. This future PE is lower than the current PE for the GB Medical Equipment industry at 37.4x.
• Analysts expect the number of shares outstanding to grow by 0.11% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.59%, as per the Simply Wall St company report.

Abbott Laboratories Future Earnings Per Share Growth

Risks

• The VBP implementation in China affected Core Lab Diagnostics sales, indicating potential ongoing impacts from pricing pressures in this significant market. This could impact revenue and net margins.
  
• Nutrition sales growth was below expectations due to share loss in international pediatric markets, suggesting vulnerabilities in competitive positioning and execution that might impact future revenue.
  
• Foreign exchange rates had a 2.5% unfavorable impact on third-quarter sales, highlighting the risks of currency fluctuations that could affect reported revenues and earnings.
  
• The delay and subsequent impact of variabilities in the Core Lab business from VBP transitions in China suggest potential volatility and challenges in consistently meeting market expectations, potentially affecting revenue.
  
• The legal risks and associated liabilities related to infant formula litigation could pose significant financial uncertainties, which may impact Abbott’s earnings and financial stability.

Valuation

• The analysts have a consensus price target of $129.87 for Abbott Laboratories based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $149.0, and the most bearish reporting a price target of just $104.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $50.5 billion, earnings will come to $8.1 billion, and it would be trading on a PE ratio of 33.9x, assuming you use a discount rate of 6.6%.
• Given the current share price of $114.14, the analyst's price target of $129.87 is 12.1% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.