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Why Abbott Labs' Sizzling Growth Could Taper Off

By Keith Speights and Brian Orelli, PhD - May 4, 2021 at 7:01AM

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There's one key growth driver that's likely to diminish in importance.

Abbott Laboratories (ABT -0.56%) reported its first-quarter results on April 20, 2021. The healthcare company delivered impressive sales growth. In this Motley Fool Live video recorded on April 21, 2021, Motley Fool contributors Keith Speights and Brian Orelli discuss why Abbott's sizzling growth could taper off in the near future.

Keith Speights: All right, so let's switch to earnings. We are beginning the fun of earning season now and we had several companies in the healthcare space report earnings already this week.

One of them is a major player in COVID-19 testing, Abbott Labs. Abbott reported their Q1 results. Brian, I know you've taken a look at Abbott's update. What do you think investors should make of Abbott's Q1?

Brian Orelli: Yes, sales were up 35.3%. COVID testing made up $2.2 billion of the $10.5 billion in revenue. A majority of that increase in sales was due to COVID. If you back out COVID, sales were up 7.6%. Going from 35.3% with the COVID to just 7.6% without.

Not a bad quarter, but I'm not sure we should expect 35% growth year over year to continue down the line. The COVID testing was $2.2 billion, as I said, but that was down from $2.4 billion in the fourth quarter. I think they're seeing some slowdown in testing.

Medical devices were up 13.1%, but that was muted by nutrition, which was only up 6.9%, and generics, which was only up 2.5%. Within the medical devices, I think diabetes and heart were both the winners there.

The adjusted earnings per share more than doubled, but they kept the 2021 guidance for growth of more than 35%. I take that as a sign that Abbott sees continued declines in COVID testing revenue.

Speights: I think you're right. By the way, the stock fell a little after reporting results. That was mainly because the results were seen as mixed. Abbott missed the consensus revenue estimate by a little bit. I think they had revenue of $10.5 billion and Wall Street was looking for revenue closer to $10.7 billion. They did pretty easily beat on the bottom line, though, so it was mixed results, the stock fell a little bit.

I think you're right that they are anticipating testing for COVID-19 is going to fall off but they do have a new product that was just launched, I think just this month. It's an at-home version of their BinaxNOW self-test that individuals can test themselves for COVID-19. They don't even require a prescription for it and so I think Abbott has some high hopes for that, but like you said, with overall testing rates going down, we'll see what happens over the next year or so with COVID-19 testing for Abbott.

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