Coronavirus Tests Rollout to Drive Abbott (ABT) Q2 Earnings?

Abbott Laboratories ABT is slated to report second-quarter 2020 results on Jul 16, before market open.

In the last reported quarter, the company reported earnings surprise of 18.18%. Over the trailing four quarters, its earnings have been in line with the Zacks Consensus Estimate on two occasions and exceeded the same in the other two, the average beat being 5.17%.

Let's see how things have shaped up prior to this announcement.

Factors at Play

Since the second half of the first quarter, the company has been entangled in issues like procedural delays for its non-coronavirus products. We note that from March, when the heath industry across the globe started to postpone non-emergency healthcare activities to focus on COVID-19 treatments, Abbott’s hospital-based elective cardiovascular EP ablation and neuromodulation procedures witnessed a sharp decline in demand. This trend is likely to have continued through the second quarter.

Further, the coronavirus outbreak has massively disrupted the global supply chain. Hence, Abbott, which has a huge international base, is expected to have seen a significant fall in its quarterly revenues.

In fact, during its first-quarter earnings call, the company had expected a severe impact of procedural deferrals on its second-quarter revenues due to which it suspended its full-year guidance.

Abbott Laboratories Price and EPS Surprise

Abbott Laboratories price-eps-surprise | Abbott Laboratories Quote

On a positive note, Abbott has been making significant strides within its Diagnostics business in the wake of the coronavirus outbreak. In the past few months, the FDA has granted EUA to a number of Abbott’s coronavirus tests. At the same time, Abbott has reached an agreement with the U.K. government to supply its laboratory-based IgG antibody tests, which help in identifying infected people.

We note that in March, Abbott launched two COVID-19 tests — the ID NOW COVID-19 molecular test (the fastest available molecular point-of-care test delivering results within 13 minutes and positive results in five minutes) and the RealTime SARS-CoV-2 molecular test (which runs on Abbott's m2000 RealTime System located in hospitals and reference laboratories). In April, the company rolled out its third COVID-19 test, which is a serology blood test for the detection of the antibody, IgG, on its lab-based immunoassay testing platforms.

All the tests were rolled out in the latter part of the March-end quarter, and got significant market acceptance. These are expected to have made full-quarter contributions to the company’s global Diagnostics business’ second-quarter revenues.

Despite this, Per The Street report's Jun 1 version, Goldman Sachs downgraded Abbott to Sell. According to the report, Goldman said that despite taking an early lead with multiple emergency use authorizations (EUAs) in the United States and a sizable test production outlook, "competitors have steadily diminished ABT’s early advantage with their own approvals on high throughput systems." This should have adversely impacted diagnostic testing kit sales in the soon-to-be-reported quarter.

The Zacks Consensus Estimate of $1.29 billion for Diagnostic revenues suggests a 32.2% decline from the figure registered in the comparable quarter last year.

We, however, expect revenues to have improved in the company’s Diabetes Care business as it has been on a substantially strong growth trajectory in recent times. Abbott has been in the limelight for developments in its flagship, sensor-based continuous glucose monitoring system, widely known as the FreeStyle Libre System. In the first quarter, this business registered 35.6% growth backed by FreeStyle Libre, which recorded a year-over-year surge of 62.5%, organically, in global sales.

In April 2020, Abbott attained Health Canada authorization to use FreeStyle Libre system in hospital settings during the coronavirus outbreak. This enabled frontline COVID-19 healthcare workers to remotely monitor patients' glucose status and glucose history.This news received a positive response from the stakeholders.

Nevertheless, this business too, having a strong global setup, might have been affected by the supply-chain disruption worldwide during the period under discussion.

Overall, the Zacks Consensus Estimate of $632 million for Diabetes care business revenues suggests a 4.9% decline from the figure registered in the comparable quarter last year.

The company’s Nutrition business that includes a broad range of pediatric and adult nutritional products, however, might have gained strength on increase in demand for these products the worldwide health hazard. It is a rapidly-growing business of Abbott, owing to the aging population, increasing rate of chronic diseases and the rise of the middle class in emerging markets.

Estimates

For second-quarter 2020, the Zacks Consensus Estimate for total revenues of $7.48 billion indicates 0.7% decline from the prior-year reported figure. Also, the consensus estimate for earnings is pegged at 60 cents, indicating a 4.8% fall year on year.

Earnings Whispers

Per our proven model, a stock with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold), along with a positive Earnings ESP, has good chances of beating estimates. This is exactly the case as you can see:

Earnings ESP: Abbott has an Earnings ESP of +7.48%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Abbott currently carries a Zacks Rank #2.

Other Stocks Worth a Look

Here are a few medical stocks also worth considering as these have the right combination of elements to beat on earnings this reporting cycle.

Anthem, Inc. ANTM has an Earnings ESP of +7.61% and carries a Zacks Rank of 2, at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Teladoc Health, Inc. TDOC currently carries a Zacks Rank #2 and has an Earnings ESP of +61.02%.

Thermo Fisher Scientific TMO has an Earnings ESP of +14.37% and carries a Zacks Rank of 2, at present.

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