Abbott Laboratories ABT has recorded a 15% rise in its share price year to date. Despite the company reporting a solid first-quarter 2025 earnings beat last week, external pressure, particularly the ongoing tariff war, has dampened investors' enthusiasm and capped further market gains. Let's delve deeper.

Since its earnings release on April 16, shares of Abbott have edged down 0.2%, underperforming the industry as well as the S&P 500’s gain of 2%. The broader Medical sector collectively gained 1% during this period. The company’s archrivals like Boston Scientific BSX and Medtronic MDT registered share price improvements of 6.2% and 2%, respectively, during the said period.

Abbott Share Comparison Since Q1 Earnings Release

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Tariffs Threaten Growth Trajectory

On the first-quarter earnings call, Abbott outlined the projected financial repercussions of U.S. tariffs imposed by the Trump administration. The company estimated the direct hit to be in the range of “a few hundred million dollars” for the current year. While the company claimed this figure would remain manageable in the near term, the concern lies in the longevity and unpredictability of tariff enforcement.

These tariffs are particularly consequential given that Abbott’s product portfolio, ranging from infant nutrition to advanced medical devices, relies heavily on global production and distribution networks. With certain devices being imported into the United States from overseas, tariff-induced cost pressure is set to rise, starting from the third quarter of 2025.

Defensive Strategy Might Improve Situation

While the trade policy environment introduces complexity, Abbott’s management remains confident about the company’s ability to weather the storm. The company’s global footprint with 90 manufacturing sites worldwide balances out the regional risks and gives the company scope to reroute supply chains when necessary. This diversified business model is expected to provide a degree of flexibility that the company’s peers may lack.

The company is currently studying long-term strategies to minimize tariff exposure. Options under consideration include leveraging its manufacturing base to localize production and avoid cross-border duties, optimizing supplier contracts and potentially passing on some of the increased costs to customers.

Two Impressive Long-Term Takeaways

EPD Set for Sustainable Growth: Abbott’s EPD operates solely in emerging geographies, with leading positions in many of the largest and fastest-growing pharmaceutical markets for branded generics in the world. These markets include India, Russia, China and Latin America. Banking on the successful execution of its Branded Generic operating model, EPD is well-positioned for sustained growth in many of these growing pharmaceutical markets. Focusing on the therapies most needed in the faster-growing markets, Abbott continues to sustain its long track record of delivering strong growth, which includes a five-year CAGR for EPD of 8%.

Abbott’s EPD sales in the first quarter of 2025 increased 8% organically. More than half of its top 15 markets posted double-digit gains. Abbott’s strategic focus on biosimilars further strengthens its prospects, with the company now securing rights to 15 biosimilar products across key therapeutic areas.

Libre Drives Diabetes Care: Abbott’s Diabetes Care business continued to benefit from the growing sales of its flagship, sensor-based continuous glucose monitoring system, FreeStyle Libre. In a relatively short span, FreeStyle Libre has achieved global leadership among continuous glucose monitoring (CGM) systems for both Type 1 and Type 2 users. Lately, the company has been gaining momentum, leveraging consistent upgrades of FreeStyle Libre.

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 for Abbott in the United States.In the first quarter, in Diabetes Care, sales of CGM exceeded $1.7 billion and grew 21.6%. Several products contributed to the strong performance, including FreeStyle Libre, Navitor, TriClip, Amplatzer Amulet and AVEIR.

Long-Term Potential Hindered by Short-Term Weakness

Abbott is currently trading below its 50-day simple moving average (SMA) but above its 200-day SMA. While the company is experiencing short-term bearishness in the form of macro complexities, investors still think that it has potential for a long-term uptrend based on its fundamentals and growth strategies.

ABT's 50 & 200-Day SMA

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Stretched Valuation

From a valuation standpoint, Abbott’s forward 12-month price-to-earnings (P/E) is 24.37X, a premium to the industry average of 21.07X.

The company is also trading at a significant premium to industry players like Medtronic, with its current P/E being 14.47. However, Boston Scientific, with a current P/E of 34.08X, appears more stretched.

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Our Take: Hold Now

Despite its adaptive strategies, Abbott's stock price has not fully reflected the company’s underlying strength. The subdued market reaction to its positive first-quarter results suggests that investors remain cautious amid geopolitical uncertainty, mainly in the form of retaliating tariffs.

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 first quarter boosted investor sentiment, this might not be the ideal time to invest in Abbott. The short-term hiccups in the form of international trade challenges 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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This article originally published on Zacks Investment Research (zacks.com).

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