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Abbott Labs Is a Rare Growth Story in Health Care; Opportunities in diabetes care, generic drugs make stock a compelling valueAbbott Labs Is a Rare Growth Story in Health Care; Opportunities in diabetes care, generic drugs make stock a compelling valueGrant, Charley. Wall Street Journal (Online); New York, N.Y. Here's to the health of Abbott Laboratories. The reason to buy shares in the maker of Ensure nutrition products is fairly simple: The company is growing its top line faster than just about any health-care company of comparable size. And since it doesn't sell pharmaceuticals in the U.S., Abbott is relatively well insulated from regulatory risk. Abbott's four main operating segments--nutrition, medical devices, prescription drugs in emerging markets and medical diagnostics--are all expanding at faster rates than the typical large-cap stock. On an adjusted basis, total sales grew by 8% in the second quarter from a year ago. Adjusted earnings per share grew by 17% over that same period. That's not bad for a company with a market value north of $100 billion. Maintaining that pace over the long term will be a challenge, but Wall Street expects sales growth in the next several years will be almost as strong. FactSet analyst consensus suggests annual growth of about 6%. A closer look at Abbott's business lines suggests those long-term goals are reachable. In devices, Abbott recently launched the FreeStyle Libre glucose monitor, which eliminates the need for diabetic patients to prick their fingers. Second-quarter sales approached $500 million world-wide. That tally will likely grow substantially; Abbott recently called the product's uptake "unparalleled." While there are strong competitors, the diabetes market is large and has plenty of room for growth. Other segments also have promise. The generic-drug industry has struggled mightily in the U.S., but the picture overseas is much different. In key emerging markets like India or Russia, demand for safe, reliable medication is on the rise. Sales in the second quarter were up 12% from a year ago. As with any stock, there are risks.Trade tensions could potentially harm a company with as much global reach as Abbott, but tariff saber rattling hasn't centered on medical products. Abbott also has a diverse manufacturing base that would protect the company from worsening international relations. The shares aren't a bargain by traditional metrics. Abbott fetches more than 20 times forward earnings, thanks in part to a 45% rally over the past two years. But that price tag will be worth paying if growth materializes as expected. To that end, Abbott hasn't missed quarterly earnings estimates since the spring of 2014, according to FactSet. Abbott's growth prospects are worth paying up for. |
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