In 2024, Abbott Laboratories ABT faced industry-wide challenges that exerted pressure on its profit margins. Factors such as rising inflation, labor shortages and supply chain disruptions resulted in increased operational costs, contributing to margin pressure. However, the company’s strong pipeline and innovation-driven growth strategy have helped it maintain an uptrend in its stock performance. With new product launches and strategic market penetration, Abbott’s growth outlook for 2025 remains robust, reinforcing investor confidence despite broader economic challenges.

Shares of this MedTech giant have risen 11.6% since its fourth-quarter earnings release on Jan. 22 compared with the broader industry’s 3.3% increase. The stock has also outperformed the Medical sector’s 2.5% rise. The S&P 500, in contrast, declined 0.4% in this period.

ABT shares also outperformed direct peers’ performances during this period. Boston Scientific BSX gained 5.7%, while Medtronic MDT improved 3.8%. Becton Dickinson and Company BDX declined 3.5% in this period.

Abbott Outperforms Industry, Sector & S&P 500 and Peers

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Key Takeaways From ABT's Q4 Earnings

The rally came after the company reported a 12.6% rise in fourth-quarter earnings. While worldwide sales missed the Zacks Consensus Estimate, the metric improved 8.8% organically. The company’s Medical Device business reported 14% organic growth during this period.

In Diabetes Care, sales of continuous glucose monitors grew 23% in the fourth quarter. In electrophysiology, strong demand for the company’s EnSite cardiac mapping systems contributed to the growth. In Structural Heart, a 23% increase was fueled by the strong performance of Abbott’s market-leading portfolio, including surgical valves, structural interventions, and transcatheter repair and replacement products.

The company reported strong organic sales growth across other base businesses, too. Core Laboratory Diagnostics' growth of 4% was driven by continued strong demand for Abbott’s immunoassay, clinical chemistry, hematology and blood screening testing panels.

Established Pharmaceuticals and Nutrition were the other areas of growth during the fourth quarter. EPD Growth was well balanced across markets and therapeutic areas, including gastroenterology, women's health, CNS and pain management. Within Nutrition, growth in the quarter was driven by double-digit growth in adult nutrition, led by the company’s Ensure and Glucerna brands.

Strong 2025 Outlook Impresses

Abbott is well-positioned for another year of strong growth. The company projected organic sales growth between 7.5% and 8.5%, with adjusted earnings per share expected to range from $5.05 to $5.25, indicating double-digit growth at the midpoint.

Additionally, Abbott announced it would no longer provide separate guidance for sales growth, excluding COVID testing sales, as these sales accounted for less than 2% of the company’s total revenues in 2024.

Despite the company facing a difficult margin scenario in 2024, Abbott anticipated an adjusted gross margin of 57% for 2025, reflecting an improvement of around 80 basis points compared to 2024. Meanwhile, Abbott forecast its adjusted operating margin to be between 23.5% and 24% of sales, marking a 150-basis point improvement at the midpoint versus 2024.

Abbott is currently trading above its 50-day and 200-day moving averages. This signals the possibility of “support” for a further uptrend.

ABT Above 50 & 200-Day SMA

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Long-Term Picture Bright Too

We have already discussed the company’s Medical Device business’s exceptional sales increase in the fourth quarter. We note that this growth track is quite consistent, with Abbott’s pipeline generating several new prospects within this business. Within Diabetes Care, particularly, the company is fast gaining momentum, leveraging consistent upgrades of its flagship, sensor-based continuous glucose monitoring system, FreeStyle Libre. Earlier in 2024, Abbott obtained FDA approvals for two new over-the-counter continuous glucose monitoring systems called Lingo and Libre Rio, which are based on Libre’s technology, which is now used by more than 6 million people around the world. This over-the-counter availability of CGM marks the initiation of a new era in the United States for Abbott.

Within Core Diagnostics too, the company is consistently gaining on a global scale. Abbott currently holds a prominent position in point-of-care testing, with a portfolio focused on four key areas — Infectious Disease, Cardiometabolic & Informatics, Toxicology and Consumer Diagnostics. The company is particularly progressing with its Alinity family of diagnostic systems, which is consistently gaining success banking on contract renewal and competitive win rates. In September, the company announced a new partnership with the Big Ten conference to help boost the U.S. blood supply through a blood donation competition.

Within Established Pharmaceuticals Division (EPD), the company is also strategically progressing with its advancement in biosimilars. Abbott, leveraging on its leading presence in emerging markets, is enjoying a unique opportunity to scale a licensing model that is capital-efficient and can bring access to these life-changing medicines to the emerging market population. The company started implementing this strategy in 2023 when it agreed to commercialize several biosimilars in the areas of oncology and women’s health. The first round of commercialization is expected in 2025.

Stumbling Block

The challenging macroeconomic scenario in the form of a complex geo-political situation globally, specifically where Abbott operates, is driving a higher-than-anticipated increase in expenses in terms of raw materials and freight. In the fourth quarter, Abbott incurred an 8.5% increase in the cost of products sold (excluding amortization expense). The gross margin contracted 55 basis points to 55%. Selling, general and administration expenses were up 6.7% year over year, resulting in a 43-basis point contraction in the adjusted operating margin.

During the COVID-19 public health emergency, Abbott’s diagnostic tests witnessed stupendous revenue growth backed by increasing demand for testing as well as government-enacted favorable policies to expedite or promote access to healthcare in order to slow down or stop the spread of the virus. However, since the official ending of the public health emergency in May 2023, Abbott has been experiencing a continuous runoff in COVID testing-related sales. Rapid Diagnostics sales decreased 1% organically in the fourth quarter of 2024 due to 17.4% lower demand for COVID-19 tests. Within Molecular Diagnostics too, organic sales plunged 10.2% year over year on a 2.8% unfavorable impact from COVID-19 testing sales.

In the upcoming months, too, the decline in testing demand is expected to mar Abbott’s overall sales growth.

Stretched Valuation

From a valuation standpoint, Abbott’s forward 12-month price-to-earnings (P/E) is 25.91X, a premium to the industry average of 22.66X.

The company is also trading at a significant premium to most of its industry players, like MDT, with its current P/E being 15.80, and BDX, whose current P/E is 15.42X. BSX, on the other hand, currently has a P/E of 36.63X.

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Our Take: A Hold Now

Abbott’s strong market position, promising growth prospects and consistent share gains make it a compelling stock to retain in the portfolio. However, the current stretched valuation suggests that investors may be paying a higher price relative to the company's expected earnings growth. While the impressive performance in the fourth quarter boosted investor sentiment, this might not be the ideal time to invest in Abbott. Short-term hiccups, such as international trade challenges and testing-related hurdles, are limiting the stock’s near-term gains.

Accordingly, while current shareholders should hold their positions, new investors should wait for a better entry point.

Abbott currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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