Abbott Laboratories ABT shares are trading at a discount to the Zacks Medical Products industry. Its trailing 12-month price-to-book value of 4.91X is significantly lower than the industry average of 7.64X and the benchmark’s average of 8.77.
The stock also remains attractively valued compared to its peers like Boston Scientific BSX with a P/B of 6.47X and Stryker SYK with a P/B of 6.72.
A low P/B compared to the industry average and competitors can present a buying opportunity for value investors on the assumption that the market is yet to fully recognize the company’s intrinsic value.
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ABT, a MedTech behemoth with a market capitalization of $196 billion, continues to face industrywide challenges of margin pressure stemming from growing inflation, labor shortages and supply chain disruptions. However, the company’s ability to pivot and deliver solid results in key areas underscores its resilience and strategic acumen. The company is poised to report fourth-quarter and full-year 2024 results (scheduled on Jan. 22, 2025) on a strong and optimistic trajectory, backed largely by strategic investments and operational efficiency.
In the past six months, the industrywide issues stated above were reflected in the performance of the broader industry, which improved a mere 9.1%, and the Medical sector, which declined 9.3%. The S&P 500 index improved 7.4% during this period. Encouragingly, Abbott outperformed all three, registering a six-month share improvement of 11.6%.
During this period, Stryker stock rose 5.8%, while shares of Boston Scientific rallied 20.2%.
6-Month Price Comparison
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Encouraging 2025 Prospects for Abbott
In Diagnostics, on a global scale, Abbott has been gaining a prominent position in point-of-care testing, with a portfolio focused on four key areas such as Infectious Disease, Cardiometabolic & Informatics, Toxicology and Consumer Diagnostics. In rapid and point-of-care diagnostics businesses, the company is consistently expanding its test menus and is also capitalizing on the growing demand for respiratory tests that can be performed at home or in more traditional healthcare settings.
Meanwhile, within Established Pharmaceuticals Division (EPD), the company is 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. In this line, the company agreed to commercialize several biosimilars in the areas of oncology and women’s health in 2023. The first round of commercialization is on track for 2025. Recently, the company completed additional agreements to get access to biosimilar versions of market-leading autoimmune disease and GLP1 medications. The company is highly optimistic about this initiative, considering the fact that biosimilars represent the highest growth segment in the branded generic pharmaceutical market.
Within Diabetes Care, the company is fast gaining momentum, leveraging consistent upgrades of its flagship, sensor-based continuous glucose monitoring (CGM) system, FreeStyle Libre. In the third quarter of 2024, in Diabetes Care, sales of CGM exceeded $1.6 billion and grew 21%. In August, the company announced that it had entered into a unique global partnership with Medtronic to connect Abbott's FreeStyle Libre CGM sensor with Medtronic’s automated insulin delivery systems. Earlier in 2024, Abbott announced that Tandem Diabetes Care’s t:slim X2 insulin pump with Control-IQ technology is the first automated insulin delivery (AID) system to integrate with the newly available FreeStyle Libre 2 Plus sensor, Abbott’s latest CGM technology. Abbott is currently working with other leading insulin pump manufacturers to integrate their systems with Libre 2 and Libre 3.
Abbott Settles Disputes With Dexcom
Investors seem upbeat about ABT’s recent agreement to settle all pending lawsuits with the company’s CGM peer Dexcom DXCM. The agreement will lead to the dismissal of all pending cases worldwide. It also includes a provision that the parties will not litigate patent, trade dress and design rights disputes with each other for the next 10 years.
As litigation expenses weigh hugely on the company’s operating profits, the latest development came as a sigh of relief for the investors. Abbott management considers this agreement a positive development, as it allows the company to fully focus on the advancement of the Diabetes Care business.
High Return on Equity for ABT Stock
ABT’s trailing 12-month return on equity (ROE) of 20.18% significantly outpaces the average earned by companies in the Medical Products industry (16.62%). This superior ROE underscores Abbott’s efficient management and ability to generate strong returns for shareholders, further reinforcing its investment appeal.
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Why Abbott Stock is a Buy
Abbott’s diversified business model has been a significant factor in its consistent performance. It has also helped the company to mitigate risks associated with market fluctuations in any single segment. The company’s strong market position, promising growth prospects and consistent share gains make it a compelling buy.
Apart from its discounted valuation compared to the industry average, Abbott’s strong ROE also indicates that the company is good at turning equity capital into net income, suggesting strong operational efficiency. Even amid the challenging scenario in terms of profit margins, this shows that the business is still generating significant earnings relative to the equity invested by shareholders.
Further, Abbott’s financial strength, evident from its strong cash flow and conservative leverage profile, enhances its ability to invest in growth opportunities. The stock’s Zacks Rank #2 (Buy) underscores its upward potential. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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