Abbott (ABT) Profit Margin Surge Challenges Bearish Narratives Despite Earnings Decline Forecast

Abbott Laboratories (ABT) posted net profit margins of 31.8%, more than doubling last year’s 14% margin. Earnings jumped 142% year-over-year, outpacing the company’s 18.1% annualized earnings growth over the past five years. Looking ahead, revenue is forecast to climb at 7% per year, trailing the broader US market’s 10% growth outlook, and consensus expects earnings to decline by an average of 7.1% annually through the next three years. The results present a mix of high profitability and attractive valuation, but investors will be watching closely as the earnings outlook turns negative.

See our full analysis for Abbott Laboratories.

Next up, we’ll see how this latest set of results compares to the most widely followed narratives about Abbott. Some may get reinforced, while others could be tested against the numbers.

See what the community is saying about Abbott Laboratories

Margins Expected to Come Back Down

• Profit margins are projected to shrink from 32.3% today to 17.6% in three years, almost halving despite the current strength.
• Analysts' consensus view highlights how, even with strong demand from new product launches and growth in global healthcare, several forces could pull margins lower:
  • Regulatory risk and competitive pressures, especially in China and diagnostics, are forcing price cuts that put direct pressure on Abbott’s high-margin segments.
  • Increased investments needed for innovation and global expansion may boost costs faster than revenue and squeeze profitability, challenging the idea that margin momentum can continue unchecked.

Even as management touts innovations and expansion, consensus expects sharp profitability compression over the medium term. Read the full consensus narrative for detail on which factors drive this debate. 📊 Read the full Abbott Laboratories Consensus Narrative.

Growth Lags Broader Market

• Revenue is forecast to grow at just 7% per year over the next three years, trailing the US market’s expected 10% growth rate and giving bears firepower to argue the company risks falling behind peers.
• The consensus narrative makes clear that competitive bidding and global price controls could cap long-term sales momentum:
  • Despite expanding in emerging markets and launching biosimilars, Abbott’s growth rate is constrained versus the industry and faces risks from shifting government policies, which may make future revenue less predictable.
  • Ongoing declines in high-profile areas like COVID diagnostics put further pressure on headline sales numbers, highlighting where optimistic views could get derailed.

Valuation Discount vs Peers

• Abbott trades at a price-to-earnings ratio of 16.2x, much lower than the US Medical Equipment industry's average of 29.2x and peers at 48.1x, which reinforces the view that the stock’s valuation is relatively attractive.
• According to analysts' consensus, despite the risk of earnings decline, the current share price of $129.45 is still noticeably below the official analyst target of $143.39:
  • The mix of a lower PE and a share price 10.8% below the target creates upside potential if any of the long-term margin or growth drivers outperform muted expectations.
  • However, the ongoing risk of profit contraction means investors need to decide if the discounted valuation sufficiently compensates for the headwinds ahead.

Next Steps

To see how these results tie into long-term growth, risks, and valuation, check out the full range of community narratives for Abbott Laboratories on Simply Wall St. Add the company to your watchlist or portfolio so you'll be alerted when the story evolves.

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A great starting point for your Abbott Laboratories research is our analysis highlighting 4 key rewards and 1 important warning sign that could impact your investment decision.

See What Else Is Out There

Abbott faces looming margin pressure, slowing revenue growth, and increased risks that earnings may continue to fall behind healthier market leaders.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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