When we think of growth stocks, we often think of young companies that are not necessarily profitable. They may be generating revenue from two or three figures, but they are reinvesting it all into their businesses. Now imagine that there is an established healthcare business there – with revenue and profit growth in the double digits?
The safety of a player who has been around for a long time, and the possibility of a strong income gain – and stock price increases – are very good. This stock climbed 26% last year and recently reported stellar quarterly and full-year earnings. I’m talking about the healthcare giant Abbott Laboratories (NYSE: ABT). Let’s look at this surprising growth.
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A portfolio mix that works
Diversification has helped Abbott set up a growth-friendly product portfolio. The company includes four businesses: diagnostics, medical devices, nutrition and pharmaceuticals. Abbott’s annual net income has climbed over the past three years. And the annual income has increased over the past eight years. The medical equipment industry is usually the strongest area. In 2019, for example, the business accounted for 38% of Abbott’s full annual revenue.
Last year, however, the coronavirus pandemic led to fewer procedures in healthcare settings. Hospitals focused resources on COVID-19 patients. And that weighed in on sales of Abbott’s medical devices. But early in the crisis, Abbott was already thinking about growth. The company started working on coronavirus diagnostics and has been a leader in the field ever since.
The US Food and Drug Administration (FDA) has approved eight of Abbott’s COVID-19 tests for emergency use (EUA). This includes the fast, portable BinaxNOW in the US internationally, and authorities have approved the similar Panbio diagnostics. Both provide great income for Abbott.
In the fourth quarter, which ended on December 31, the BinaxNOW, Panbio and Abbott’s rapid test platforms brought in NO NO $ 1.9 billion in sales. In all, Abbott’s coronavirus diagnosis generated $ 2.4 billion. Abbott has delivered more than 400 million coronavirus tests since the start of the pandemic – 300 million of which were shipped in the fourth quarter. The BinaxNOW and the Panbio were launched in late summer, so we’re only now starting to see how their sales translate into earnings.
An increase in testing
This increase in testing increased sales of Abbott’s diagnostic business by 111% in the fourth quarter and 40% for the year. All figures are year after year. Total sales in the fourth quarter – including all business segments – rose more than 28% to $ 10.7 billion. And earnings per share (EPS) for the quarter rose more than 52% to $ 1.45. What’s even better is the strength of Abbott’s forecast for the coming year. The company forecasts growth in EPS of more than 35% for 2021.
So how will all this growth continue? In terms of sales of coronavirus diagnosis, there is probably a lot more. The US ordered 150 million BinaxNOW tests – and Abbott completed the order last month. It is now working on a second order for another 30 million tests by March. Newlyweds President Joe Biden has made coronavirus testing one of his main goals. It is not difficult to imagine that the new administration will refocus on testing, which will result in more orders in the future.
Even if the pandemic eases, it is clear that the need for testing will continue for some time to come. Testing is the primary way to monitor the presence of the virus worldwide. And while Abbott’s coronavirus test this year had to compensate for the flagging of medical devices, it probably won’t have to do it again. Hospitals resume other procedures, and sales of medical devices recover. Abbott’s sales of medical devices, for example, fell by 21% in the quarter ended June 30. It rose 1.7% in the fourth quarter.
It is very likely that Abbott will benefit from coronavirus diagnostic sales this year and in the future. and sales of medical devices. The double-digit profit target of the company for the year therefore seems within reach. And I think that means more profits are at hand shares of this healthcare business as well.