Abbott Laboratories ABT is gaining from strength in the Established Pharmaceuticals Division (EPD) business. Robust demand for the company’s continuous glucose monitoring (CGM) devices instills optimism. The company ended the first quarter of 2022 with better-than-expected results. However, declining Nutrition sales and foreign exchange headwinds raise apprehensions.

In the past year, the Zacks Rank #3 (Hold) stock lost 5.9% against a 26% fall of the industry and a 3.6% drop of the S&P 500.

The renowned medical device company has a market capitalization of $192.39 billion. Its earnings for first-quarter 2022 surpassed the Zacks Consensus Estimate by 17.7%.

In the past five years, the company registered earnings growth of 17.7%, which is way ahead of the 9.1% rise and the S&P 500’s 13.4% increase. The company’s long-term expected growth rate of 7.8% compared with the industry’s growth projection of 16.4% and the S&P 500’s projected 10.8% increase.

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Let’s delve deeper.

Key Drivers

Q1 Upsides: Abbott posted better-than-expected earnings and revenue numbers for the first quarter of 2022. Overall, year-over-year improvements were robust. Barring Nutrition, the company registered organic sales growth across all core operating segments. Organic sales increased 17.5% in the quarter, led by double-digit growth in medical devices, EPD and diagnostics, both with and without COVID testing-related sales.

Within Nutrition, while the pediatric nutrition business witnessed a drag, the adult nutrition business continues to perform well with global organic sales growth of 11.5%, led by the company’s Ensure and Glucerna brands.

EPD Business Gains Momentum: Abbott’s EPD business operates solely in emerging geographies, with leading positions in many of the largest and fastest-growing pharmaceutical markets for branded generics in the world. Per the company, its unique branded generics model was built to focus specifically on key emerging countries where long-term growth in medicines is guaranteed by the aging population and the related rise in chronic diseases.

For the first quarter, EPD sales increased 13.5% year over year. The company reported double-digit organic sales growth in three of the last four quarters. Strong growth is primarily led by strong execution and a steady cadence of new product introductions.

Progress With Diabetes Business: The Diabetes Care business achieved organic sales growth of 20.4% on the strength in FreeStyle Libre, which recorded $1 billion in sales during the first quarter. In a relatively short span, the Libre achieved global leadership among CGM systems for both Type 1 and Type 2 users, raising optimism. Recently, the company received expanded reimbursement for Libre in Japan, which covers all diabetes patients requiring insulin at least once a day.

Downsides

Dull Sales Scenario: During the first quarter, within Abbott’s Nutrition business, worldwide Nutrition sales dropped 7% on a reported basis and fell 4.4% on an organic basis. Sales were affected by a voluntary recall of certain powder formulas manufactured at one of Abbott's U.S. plants.

Forex Woes: Foreign exchange is a major headwind for Abbott due to a considerable percentage of its revenues from outside the United States. The company reported a 3.7% unfavorable year-over-year impact of foreign exchange in the first quarter.

Tension in China Continues: In the first quarter, Abbott’s procedure volume was significantly down in China, as the COVID-led lockdown started to hamper business, specifically in Shanghai. While expanding its nutrition business in emerging markets, the company is facing weaknesses in Greater China on challenging market dynamics.

Estimate Trend

In the past 60 days, the Zacks Consensus Estimate for Abbott’s 2022 earnings has moved north to $4.82.

The Zacks Consensus Estimate for its 2022 revenues is pegged at $41.59 billion, suggesting a 3.5% decline from the 2021 comparable figure.

Zacks Rank and Key Picks

A few better-ranked stocks in the broader medical space are AMN Healthcare Services, Inc. AMN, Medpace Holdings, Inc. MEDP and UnitedHealth Group Incorporated UNH.

AMN Healthcare has a long-term earnings growth rate of 1.1%. The company surpassed earnings estimates in the trailing four quarters, delivering a surprise of 15.6%, on average. It currently flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

AMN Healthcare has outperformed its industry in the past year. AMN has declined 4.6% versus the industry’s 62.4% fall.

Medpace has a historical growth rate of 27.3%. Medpace’s earnings surpassed estimates in the trailing four quarters, the average surprise being 17.1%. It currently has a Zacks Rank #2 (Buy).

Medpace has outperformed its industry in the past year. MEDP has declined 14% against the industry’s 62.4% fall.

UnitedHealth has an estimated long-term growth rate of 14.8%. UnitedHealth’s earnings surpassed estimates in the trailing four quarters, the average surprise being 3.7%. It currently carries a Zacks Rank #2.

UnitedHealth has outperformed the industry over the past year. UNH has gained 18.8% compared with 16.2% industry growth in the said period.

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