Like many other companies that sell medical devices, Abbott Laboratories (ABT 0.49%) suffered at times during the pandemic as hospitals postponed non-essential procedures to focus their limited resources on treating coronavirus patients. But Abbott has one thing many other medical device makers don't -- an enormous COVID-19 testing business. That helped push its overall revenue up by more than 17% in 2022's first quarter.
Now, however, as we look ahead to a time when the pandemic phase of the COVID-19 crisis will end, and the virus will shift into being an endemic issue, Abbott's shareholders might be getting a little nervous about the future of its coronavirus testing revenue. With the perceived threat receding, they might expect that testing demand will drop drastically.
Abbott doesn't see things that way. In fact, 21 words that CEO Robert Ford said during the first-quarter earnings call on Wednesday offer reason for optimism.
Image source: Getty Images.
Cases and testing requirements
First, it's important to note that coronavirus testing revenue, from the start, hasn't climbed in a steady line. It has ebbed and flowed along with new case figures and shifts in testing requirements to access things like travel. So we should expect figures to keep fluctuating from quarter to quarter.
Here's what Ford said:
"Do we have confidence that even in an endemic state, does testing continue? And I would say, yes, it does continue."
Ford went on to say that Abbott is in the strongest position in the COVID-19 testing market, and should be able to lead it. He expects that by next year, the coronavirus testing market in some areas may resemble that for the flu. This implies there may be times when there are significantly more new cases -- and more of a need for testing. It's also key to keep in mind that Abbott sells its COVID tests worldwide, and new case diagnoses and trends will keep varying widely from place to place. In fact, 50% of Abbott's COVID testing sales last month came from international markets.
So how much revenue can investors expect from future COVID test sales? One of Abbott's weaker periods on this front was 2021's second quarter, when it reported $1.3 billion in coronavirus test sales. This was just after the company lowered its full-year outlook due to waning test demand. Recent quarters have been stronger as the delta and omicron variants spread rapidly, causing sharp surges in new cases. In 2022's first quarter, Abbott reported $3.3 billion in coronavirus test sales.
An endemic situation
In an endemic situation, Abbott still could generate blockbuster revenues from its COVID tests if various venues continue to require people to get tested prior to entry. For some, regular testing may be mandatory to go to school or work. And even if it is only recommended in certain situations, many people will want to get tested if they're high risk or if they are planning to be in contact with high-risk individuals. And of course, demand also could get a lift when cases increase in specific locales.
In short, it's likely that coronavirus test sales will remain a notable part of Abbott's revenue picture.
What does this mean for you as an investor? I wouldn't buy or sell Abbott stock specifically based on its position in this business. It's actually just one small part of Abbott. The company has four solid businesses: medical devices, established pharmaceuticals, diagnostics, and nutrition. It's better to look at the company as a whole, and from there, bet on its future prospects.
And here, there's reason to be positive. On the earnings call, Ford said if you factored out the positive impact of coronavirus test sales and the negative impact of a recent baby formula recall, the company's Q1 growth was about 11%. And in the quarter, each business -- except for nutrition, due to the recall -- delivered double-digit percentage revenue growth. The growth of Abbott's medical devices business was particularly good news because it contributed the most to revenue in the pre-coronavirus days.
If Ford's right about how people will behave in a world where COVID-19 is an endemic problem, coronavirus testing might continue to generate more than $1 billion in annual revenues. But even if it doesn't reach that blockbuster level, Abbott remains a solid healthcare stock for any portfolio, because all four of its businesses are set to deliver growth over time.
