Sell-Side Issues Positive Prognosis For Abbott Following Mixed Q4 Results, Strong 2019 Outlook

Medical device and supplies manufacturer Abbott Laboratories ABTreported Wednesday ahead of the market open with above-consensus fourth-quarter earnings, while revenue trailed expectations.

The Analysts

RBC Capital Markets analyst Glen Novarro reiterated an Outperform rating on Abbott with a $77 price target.

Raymond James analyst Jayson Bedford maintained an Outperform rating and $79 price target.

RBC Capital Markets 

Abbott's 2019 guidance — which calls for 7-percent organic revenue growth and mid-teens constant currency EPS growth —is reasonable, Novarro said in a Thursday note.

Better execution at businesses that lagged in 2018 could help the company hit the high end of its revenue growth target, the analyst said. 

Novarro sees medical devices, diagnostics and the established pharmaceuticals division, or EPD, as drivers of organic growth in 2019.

Rhythm management, vascular and neuromodulation — which account for 50 percent of Abbott's medical devices —and point-of-care and rapid diagnostics, accounting for 35 percent of the diagnostics business, are likely to be sources of upside, according to RBC. 

Based on the Q4 results, the firm trimmed its 2019 revenue estimate by $100 million to $31.8 billion, reflecting slower growth categories in devices.

RBC maintained its EPS estimate at $3.20, citing a lower tax rate and higher other income.

Raymond James 

Although not perfect, Abbott's Q4 results were solid and the initial 2019 guidance was "as good as anyone could have asked for," Bedford said in a Wednesday note. 

Dissecting the quarterly print, the analyst said devices and diagnostics were the drivers, while EPD growth decelerated, partly due to tough comps and the loss of a contract manufacturing supply agreement.

Abbott's revenue guidance was slightly ahead of Raymond James' estimate.

"The timing on the FMR label for Mitraclip is a swing factor and management is only assuming 20-25-percent Mitraclip growth in 2019, which is consistent with prior years despite the likely label expansion," Bedford said. 

The sell-side firm sees diabetes as a source of potential upside due to Libre momentum. As Alinity is launched more broadly in the U.S., the firm expects the U.S. diagnostics business to fare well.

Raymond James continues to view Abbott as "one of the fastest growing in mega-cap health care," and modestly raised its FY19 organic revenue growth and adjusted EPS estimates.

Price Action

After declining 2.21 percent to $69.91 Wednesday in reaction to earnings, Abbott shares were last seen trading near-flat Thursday at $69.90. 

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