If you've walked around your local pharmacy recently, you know that at-home coronavirus testing kits are hard to come by. In particular, Abbott Laboratories (ABT -0.59%) makes BinaxNOW kits, which are the most popular rapid coronavirus antigen diagnostic test in the U.S.
But despite strong sales throughout the pandemic, rapid testing has been a somewhat fickle driver of growth for shareholders. Though Abbott's total return has grown by more than 54% since January of 2020 in comparison to the market's growth of around 49%, its performance in the last 12 months has lagged the market. Are things different this time as a result of the omicron variant wave, or is Abbott on track to disappoint?
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Recent testing surges haven't always been enough to outperform the market
Coronavirus rapid testing revenue has been all over the place, appearing to ebb and flow based on the public's perceptions about where the pandemic is headed.
In the third quarter of 2021, Abbott reported that its rapid coronavirus diagnostics segment yielded $1.6 billion in revenue, making it a significant portion of the company's $10.92 billion in total income. Still, in the spring and early summer of 2021, Abbott Labs started to scale down its test output in anticipation of newly released vaccines bringing a prompt end to the pandemic. It laid off workers in test manufacturing centers and trimmed some of its contracts with suppliers.
For the sake of comparison, in Q1 2021, it sold $1.8 billion worth of rapid tests, and in Q2, those same testing platforms only brought in $1 billion. So, it looks like even in the heyday of test revenue in 2021, sales of rapid test kits weren't enough to power outperformance.
2022 might be a different ball game for rapid testing
With the rise of the omicron variant and increasing popularity of rapid antigen testing, this year seems like it might be decisively favorable for Abbott Labs' stock.
Earlier this month, the U.S. registered a new all-time high for the number of daily tests administered, smashing past the 3 million mark. While that number only accounts for tests reported via healthcare providers and not at-home rapid tests like BinaxNOW, it's clear that at-home rapid testing is also soaring like never before.
In the last three months, the run-up in at-home testing before the winter surge and the appearance of the omicron variant have helped the stock to expand at nearly double the total return of the S&P 500. Abbott has already committed to increasing its test manufacturing capacity once again. And there are a few reasons to believe that there's more good news to come.
Government programs are providing significant fuel for new at-home testing demand. As of Jan. 15, health insurance providers will be obligated to reimburse consumers for the purchase of up to eight rapid coronavirus diagnostic tests per month. That means Abbott is all but guaranteed to see an influx of purchases, as people will in theory be more likely to buy tests if they know that they'll get reimbursed down the line.
At the same time, the beneficial impact of reimbursable tests is dramatically limited by the unfortunate fact that Abbott's tests and similar products are flying off the shelves, leaving them hard to find. It's highly likely that distribution bottlenecks are crimping the amount of revenue that Abbott and other diagnostic test makers are able to realize, at least for the moment.
Shareholders can take heart that many communities have been purchasing millions of rapid test kits and distributing them for free at schools and libraries, independent of insurance and the supply offered by retail outlets. Likewise, the federal government plans to purchase and distribute at least 500 million rapid tests for free upon request, starting toward the end of January.
What does the future hold?
So distribution issues aside, Abbott can likely expect a few large orders to hit its books in the next few months. The definitive factor is whether rapid testing will continue to be as popular once the omicron wave subsides.
If people keep buying rapid tests on an ongoing basis like they have been, Abbott will continue to beat the market, perhaps for the rest of the year. On the other hand, if interest in testing plummets like it has with other waves, shareholders might be wishing they had invested in an index fund or other healthcare stocks once again by the time 2023 rolls around.
