Abbott Labs Earnings Have a Lot of Catching Up to Do

Abbott Labs (NYSE: ABT  ) will release its quarterly report on Wednesday, and investors are getting a bit jittery about the company's prospects. With Abbott having shed its pharmaceutical division back in January, AbbVie (NYSE: ABBV  ) has been trading separately for more than six months now, and Abbott is still trying to convince investors that it has as much growth potential as the pharma side of the business.

So far, though, AbbVie has beaten Abbott in the stock-performance battle as several of the remaining parts of Abbott have suffered from slow growth and industry-specific headwinds. Can Abbott catch up and restore the portion of earnings it got from AbbVie in the past? Let's take an early look at what's been happening with Abbott Labs over the past quarter and what we're likely to see in its quarterly report.

Stats on Abbott Labs

Analyst EPS Estimate

$0.44

Change From Year-Ago EPS

2.3%*

Revenue Estimate

$5.52 billion

Change From Year-Ago Revenue

3.9%*

Earnings Beats in Past 4 Quarters

4

Source: Yahoo! Finance. *Includes adjustments for AbbVie spinoff.

Will Abbott Labs earnings get a boost this quarter?
Analysts have kept their views on Abbott's earnings prospects largely unchanged in recent months, having kept their estimates for the June quarter and for the full 2013 year steady. The stock, though, hasn't been able to keep pace, falling 4% since early April.

The primary issue behind the ambivalence that investors have toward Abbott Labs is that the company discarded its highest-growth segment when AbbVie became a separate company. In the first quarter, the company's medical-device business saw sales in the U.S. drop almost 13% from the year-ago quarter, and Abbott's generic-drug business also saw a year-over-year drop in sales.

One more promising area of growth came from Abbott's nutritional segment, which posted a 9% rise in revenue in the first quarter. In particular, pediatric products picked up sales by 20%, with emerging markets providing a much-needed boost to the business. With Abbott having built plants in India, China, and other developing markets, the company clearly recognizes the potential in the division.

Abbott's diagnostic division has also had recent success. Last month, the company had its Realtime HCV Genotype II hepatitis-C test approved by the FDA, giving doctors the information they need to prescribe treatment regimens that are better tailored to individual patients.

Still, the big challenge for Abbott will come from the medical-device arena, where many of Abbott's peers are struggling. Johnson & Johnson (NYSE: JNJ  ) has seen double-digit percentage sales declines in its cardiovascular equipment division, with growth coming solely from its major acquisition of Synthes. Meanwhile, Boston Scientific (NYSE: BSX  ) has suffered even steeper declines in sales than Abbott, as its cardiac rhythm management business in particular has seen increased pricing pressure from competition. Abbott and Boston Scientific both compete in the drug-eluting stent niche, and even though Abbott has come out with recent advances, its stent sales were down 15% in the U.S. last quarter. Still, the company sees the area as having promise, as just this morning, Abbott announced it would acquire leg-stent maker Idev for $310 million.

When Abbott Labs releases earnings, take a close look at all the segment-specific results to see where Abbott's best growth prospects are. Management will hopefully provide some guidance on its purchases today of Idev and of cataract laser-surgery system-maker OptiMedica and how they fit into its overall strategic vision going forward. Yet without a more substantial catalyst to ramp up its future net income, it's hard to see Abbott's shares moving sharply higher from here.

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