When we think of growth stocks, we usually think of young companies that are not necessarily profitable. They may be producing double-digit or three-digit revenue gains – but they are investing all of that in their business. What if I said that there is an established healthcare company – with a prescription and double-digit profit growth?
The security of a player that has been around for a long time and the possibility of huge revenue gains – and increases in share prices – mean good business. This particular stock rose 26% last year, and recently reported stellar quarterly and annual earnings. I’m talking about the health giant Abbott Laboratories (NYSE: ABT). Let’s take a closer look at this surprising growth choice.
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A portfolio combination that works
The diversification helped Abbott to build a growth-friendly product portfolio. The company includes four businesses: diagnostics, medical devices, nutrition and pharmaceuticals. Abbott’s annual net income has increased over the past three years. And annual revenue has increased over the past eight years. Typically, the medical device business is the strongest area. For example, in 2019, this business accounted for 38% of Abbott’s full-year revenue.
Last year, however, the coronavirus pandemic led to fewer procedures in healthcare settings. Hospitals focused their resources on COVID-19 patients. And that weighed on Abbott’s medical device sales. But at the beginning of the crisis, Abbott was already thinking about growth. The company started working on diagnosing coronavirus and has since emerged as a leader in the field.
The US Food and Drug Administration (FDA) has granted Emergency Use Authorization (USA) for eight of Abbott’s COVID-19 tests. This includes the fast and portable BinaxNOW in the USA. Internationally, authorities have approved the similar Panbio diagnosis. Both are generating huge revenues for Abbott.
In the fourth quarter ended December 31, the rapid test platforms BinaxNOW, Panbio and Abbott ID NOW generated $ 1.9 billion in sales. Altogether, Abbott’s coronavirus diagnostics generated $ 2.4 billion. Abbott has delivered more than 400 million coronavirus tests since the pandemic began – and 300 million of them were shipped in the fourth quarter. BinaxNOW and Panbio were launched at the end of the summer, so we are starting to see how their sales are translating into earnings.
A wave of tests
This increase in tests helped sales of Abbott’s diagnostics business to rise 111% in the fourth quarter and 40% in the year. All figures are year after year. Total fourth quarter sales – including all business segments – increased by more than 28%, to $ 10.7 billion. And earnings per share (EPS) for the quarter jumped more than 52% to $ 1.45. What’s even better is the strength of Abbott’s forecast for next year. The company predicts EPS growth of more than 35% for 2021.
So, how will all this growth continue? When it comes to coronavirus diagnostic sales, there is likely to be a lot more to come. The United States ordered 150 million BinaxNOW tests – and Abbott completed that order last month. It is now working on a second order for an additional 30 million tests by March. Newly inaugurated President Joe Biden made coronavirus testing one of his main goals. It is not difficult to imagine the new government’s renewed focus on testing, resulting in more orders in the future.
Even if the pandemic subsides, it is clear that the need for testing will persist for some time. The test is the main way to monitor the presence of the virus worldwide. And while Abbott’s coronavirus test will have to make up for the drop in medical device sales this year, it probably won’t have to do that again. Hospitals are resuming other procedures and medical device sales are recovering. For example, Abbott’s medical device sales plunged 21% in the quarter ended June 30. They increased 1.7% in the fourth quarter.
It is very likely that this year and in the future, Abbott will benefit from diagnostic coronavirus sales and sales of medical devices. Therefore, the company’s double-digit EPS target for the year appears achievable. And I think that means that more gains are on the horizon for actions from this healthcare company as well.