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Abbott's (ABT) Nutrition & Diabetes Care Beat COVID-19 Woes

On Feb 1, we issued an updated research report on Abbott Laboratories ABT. The company has been delivering consistent solid organic growth in the Established Pharmaceuticals Division (EPD) and Diabetes segments. The stock currently carries a Zacks Rank #2 (Buy).

Over the past six months, Abbott has been outperforming the industry. The stock has gained 22.8% compared with the industry's 10.5% rise. Abbott posted better-than-expected earnings and revenue numbers for the fourth quarter and full-year 2020.

Despite regional and limited restrictions across many of its prime business regions, which led to the postponement of elective medical procedures over the past few months, Abbott has been seeing improvements in both testing and procedure volumes across its hospital-based businesses. At the same time, the company’s consumer-facing businesses, which include diabetes care, nutrition and established pharmaceuticals, are catching up pace following an initial hiccup witnessed during the first few months of the pandemic.

In the fourth quarter, within Adult Nutrition, the company reported strong double-digit growth with Ensure (adult complete and balanced nutrition brand) and Glucerna (diabetes nutrition brand) being the primary revenue contributors. Within pediatric nutrition too, U.S. sales growth was more than 5% led by increased market share of Similac infant formula brand.

Within Medical Device, Diabetes Care business has also been in the limelight for developments in its flagship, sensor-based continuous glucose monitoring system, FreeStyle Libre. The company currently expects procedure volume for cardiovascular and neuromodulation within Medical Device to improve as COVID-19 case rates subside. Abbott is also looking forward to a series of product launches within Medical Device.

For 2021, within Medical Device, the company expects continued strong double-digit growth in diabetes care business led by Freestyle Libre and steady improvements in cardiovascular and neuromodulation businesses fueled by continued business recovery and strength of the recent and upcoming product launches.

Within EPD, despite the pandemic, sequential improvement has been seen in the fourth quarter demonstrating strong fundamentals. For 2021, the company forecasts improvements in existing EPD product demand. Also, continued product introductions will contribute to growth.

Abbott has been witnessing a healthy growth graph within its Diagnostics sales, which were extremely strong in the fourth quarter driven by demand for its portfolio of COVID-19 diagnostics tests across its rapid and lab-based platforms. The biggest contribution in the fourth quarter came from the sale of the rapid lateral flow test to detect the virus, which includes BinaxNOW in the United States and Panbio internationally.

On the flip side, within Medical Device, the company registered lower sales in cardiovascular and neuromodulation businesses due to challenging conditions related to COVID case rates surge in certain geographies towards the end of the fourth quarter.

Within Pediatric Nutrition, internationally, growth in Southeast Asia was offset by continued challenging conditions in Greater China. The company is apprehensive about the new food safety regulations and a consequent oversupply of product in the market. Outside of China, the company is witnessing soft market conditions across a few international markets. This may continue hurting the top line in the ongoing quarter as well.

Key Picks

Some other top-ranked stocks from the broader medical space include Acorda Therapeutics, Inc. ACOR, Alexion Pharmaceuticals, Inc. ALXN and Anavex Life Sciences Corp. AVXL, each carrying a Zacks Rank #2 (Buy). You can seethe complete list of Zacks #1 Rank (Strong Buy) stocks here.

Acorda Therapeutics has a projected long-term earnings growth rate of 14%.

Alexion Pharmaceuticals has a projected long-term earnings growth rate of 6%.

Anavex Life Sciences has a projected long-term earnings growth rate of 9%.

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