Abbott Laboratories (ABT +1.94%) is a huge healthcare company with more than 130,000 employees that operates in more than 160 countries. The company has been around 130 years, so it's a familiar name to many investors.
To me, it's a stock with a nice blend of growth and value, even though, for the year, its shares are down more than 26%. Because of its size and four separate segments -- Medical Devices, Diagnostics, Nutrition, and Established Pharmaceuticals -- the company has a built-in diversification that allows it to thrive, even in difficult financial times.
Here are two reasons to buy the stock and one reason to sell it.
Consistent revenue and dividend growth
Abbott is on track to increase annual revenue for the 10th consecutive year. Over the past decade, the company has increased revenue 226% and earnings per share (EPS) by 22.7%. Medical Devices and Diagnostics brought in $3.6 billion and $3.7 billion in revenue, respectively, in the third quarter, while Nutrition and Established Pharmaceuticals brought in $1.8 billion and $1.3 billion, respectively.
NYSE: ABT
Key Data Points
Through nine months, the company reported $33.6 billion in revenue, up 6.2%. The biggest growth came in Diagnostics, up 18.9% over the same period in 2021, including 46.6% in the United States.
Abbott is a Dividend King that has increased its quarterly dividend for 50 consecutive years, including a 4.4% raise this year to $0.47 per share. The dividend's yield is 1.81%, about average for the S&P 500, but there's plenty of room for continued growth as its payout ratio is only 38.4%.
Data by YCharts.
The FreeStyle Libre 3 is a game changer
Abbott sells hundreds of products, so singling out just one is unusual. The company's latest version of its continuous glucose monitoring system (CGM) for diabetic care, the FreeStyle Libre 3, has been a big success because it is so small. CGMs, also known as blood sugar monitors, keep track of blood glucose 24 hours a day to allow diabetes patients to better manage their disease.
The level of sales in diabetic care is expected to grow because of our aging population and its increasingly sedentary lifestyle. According to a report by Strategic Market Research, the global CGM market was worth $6.13 billion in 2021 and is expected to have a compound annual growth rate of 11.5% between now and 2030, reaching a $16.33 billion market by that time.
At about the size of two stacked pennies, Abbott's FreeStyle Libre 3 is the smallest CGM sensor on the market. That's a big deal because it allows diabetes patients to wear the devices discreetly and without interfering with other daily activities. The information the sensors gather is downloaded to an app on users' cellphones. The company has marketed FreeStyle Libre systems for years, but the Libre 3 was just approved for use in the U.S. by diabetics age 4 and older by the U.S. Food and Drug Administration in May.
Through nine months, Abbott's diabetes care sales, which have been driven by the release of the new device, were nearly $3.5 billion, up 34.7% in the U.S. and 10.4% overall. Once supply chain issues lessen overseas, the company expects the device to do well there as well.
The FreeStyle Libre 3's users appear to be very loyal, and sensors need to be replaced every 14 days, so that means consistent revenue for Abbott.
The bottom is falling out of the company's COVID-19 testing sales
Last year, Abbott said its COVID-19 testing sales were approximately $7.7 billion. That's a lot of revenue to replace, and it will take a while for the healthcare company, even with all of its diversity, to do so. In the third quarter, it did only $1.7 billion in COVID-19 testing sales, and the company said it expects only $500,000 in COVID-19 tests in the fourth quarter.
That means that next year, Abbott's quarterly sales could pale in comparison to this year's, so the stock could likely fall out of favor with investors. In the long run, it has the strength to replace that revenue, but 2023 may be a rough year for Abbott investors.
