During a market correction, sometimes even the highest quality blue-chip stocks can be hit hard. With its stock falling 23% so far this year, Abbott Laboratories (ABT 1.15%) is a fitting recent example. Compared to the S&P 500 index's 20% year-to-date decline, Abbott Laboratories' drop has been a little more pronounced.

But this sell-off appears to have created a buying opportunity for yield-hungry investors. Let's dive into Abbott Laboratories' fundamentals and valuation to find out why.

A person is swabbed by a doctor to test for a potential COVID-19 infection.

Image source: Getty Images.

Another quarter, another revenue and earnings beat

Abbott Laboratories was able to easily surpass analysts' expectations for both revenue and non-GAAP earnings per share (EPS) when it reported first-quarter results on April 20. 

The company recorded $11.9 billion in revenue for the quarter, which works out to a 13.8% year-over-year growth rate. This topped the analyst consensus of $11 billion in revenue for the quarter. So, how did Abbott Laboratories exceed the average analyst revenue estimate for the ninth quarter out of the past 10? 

The company's only segment to not report revenue growth in the first quarter was nutrition. The segment posted $1.9 billion in sales for the quarter, which was down 7% over the year-ago period. And that's only because the company voluntarily recalled baby formula manufactured at one of its U.S. plants. 

Abbott Laboratories' diagnostics, medical devices, and established pharmaceutical segments each produced high-single-digit to low-double-digit year-over-year revenue growth in the first quarter. Due to the high demand for its rapid COVID-19 testing products, Abbott Laboratories' diagnostics segment recorded $5.3 billion in revenue for the quarter. This is equivalent to a 31.7% revenue growth rate over the year-ago period. 

For the context of just how important the diagnostics segment has been to Abbott Laboratories' recent success, it contributed to 44.4% of the company's first-quarter sales. Yet it accounted for 88.4% of Abbott Laboratories' total revenue growth in the quarter.

Abbott Laboratories generated $1.73 in adjusted diluted EPS for the first quarter, which equates to a 31.1% growth rate over the prior year. And this came in well ahead of the $1.47 average analyst EPS prediction, which was the 10th quarter out of the last 10 that Abbott Laboratories matched or beat the average analyst EPS forecast.

This impressive earnings growth was due to two factors besides the company's higher sales base. Abbott Laboratories' increased operating efficiency helped propel its non-GAAP net margin 320-basis points higher year-over-year to 25.9% in the first quarter. And a 0.9% reduction in its share count to 1.78 billion translated into a bigger piece of the profit pie for shareholders. 

Due to Abbott Laboratories' strong product portfolio and innovative track record, analysts anticipate that the company will deliver 11.5% annual earnings growth over the next five years. 

Dividend growth should continue in the future

Aside from Abbott Laboratories' bright growth outlook, the Dividend King also has the flexibility to keep growing its payout to shareholders at a high-single-digit annual rate.

That's because the stock's dividend payout ratio will be around 40% in 2022. This gives Abbott Laboratories plenty of capital for acquisitions, debt repayment, and share buyback programs to keep adjusted diluted EPS moving upward.

The company also offers investors a market-topping 1.8% dividend yield. So, the stock looks like it can provide decent immediate income with the potential for even better future income as well.

A discounted medical devices stock

Abbott Laboratories' forward price-to-earnings ratio of 22 is slightly below the medical devices industry average of 23. This more than compensates for the fact that the stock's 11.5% annual earnings growth outlook is just below the industry average of 12.8%. With Abbott Laboratories' quality and reputation as a Dividend King, the stock should arguably be trading in line with its industry. Thus, the recent weakness in Abbott Laboratories' stock seems to have made it a great buy.