Abbott Laboratories (ABT +0.28%), a medical device specialist, has a lot going its way. The company has a large and diversified portfolio of products, which it routinely expands through new launches. It has demonstrated innovative capabilities, a deep footprint in the highly regulated healthcare industry, and an impressive dividend track record.
But Abbott recently made a move that might make its prospects even more attractive. Let's see what it is and what it means for investors.
Abbott splurges on a key acquisition
On Nov. 20, Abbott Laboratories announced that it would acquire Exact Sciences (EXAS 0.16%), a cancer diagnostic specialist, for about $21 billion in cash. Abbott already has a notable diagnostic business. That's why it was able to quickly pivot toward the sale of COVID-19 diagnostic products during the early years of the pandemic, which helped it offset declining sales within its core medtech division due to pandemic-related disruption.
However, Abbott's diagnostic business has been volatile ever since. The addition of Exact Sciences, which developed Cologuard, could help. Cologuard is a noninvasive test for colorectal cancer, the second-leading cause of cancer death in the world. As Exact Sciences has repeatedly argued, there is a vast untapped addressable market here, as more than 55 million Americans age 45 (when screening should start for average-risk patients) to 85 have yet to undergo screening.
Image source: Getty Images.
Furthermore, Exact Sciences has recently launched a new, improved, and more accurate version of Cologuard, which could help attract physicians and patients who were still on the fence. While Cologuard is the most important asset Abbott will acquire through this deal, there are others.
Exact Sciences markets products such as Oncodetect, a test that helps estimate the probability of recurrence in patients with certain types of cancer, enabling physicians to make personalized treatment recommendations. It also launched Cancerguard, a test for the early detection of multiple types of cancer, earlier this year as a laboratory-developed test; that means it isn't cleared by regulatory authorities or commercially available, and analysis and testing of samples (which can be sent from anywhere) must be performed within a single laboratory. In other words, Exact Sciences is an innovative company and a leader in cancer diagnostics, and it will allow Abbott Laboratories to enter this market.
What could Abbott bring to the equation? It has far more resources at its disposal, a large international presence, and relationships with major players (including hospitals and third-party payers) in the healthcare industry. Abbott could help significantly expand the reach of Exact Sciences' products, especially outside the U.S. Continued international expansion is one of Exact Sciences' goals, and it should achieve that much faster with Abbott's backing.
NYSE: ABT
Key Data Points
Why Abbott Laboratories is a buy
Abbott's acquisition of Exact Sciences grants it access to a potentially lucrative market of cancer diagnostics, one where there's still plenty of work to be done, considering that cancer is a leading cause of death worldwide. However, there are other reasons to invest in the company. One of them is that Abbott Laboratories is a reliable healthcare player that consistently generates revenue and profits, even amid economic challenges.
Here's another. Abbott should have several growth drivers over the long run, including its franchise of continuous glucose monitoring (CGM) systems, the FreeStyle Libre. The company is a leader in this niche. In the third quarter, Abbott's revenue from its diabetes care unit, most of which comes from the FreeStyle Libre, increased 19.3% year over year to $2.1 billion. Abbott's total sales grew by a less impressive 6.9% year over year to $11.4 billion.
There is still plenty of white space in this industry, as the company observed a couple of years ago: Fewer than 1% of the world's diabetics have access to CGM technology, despite its many benefits and ability to improve outcomes for those patients. Several of Abbott's other segments also have attractive long-term prospects, including structural heart, which features the MitraClip, one of the market leaders in performing minimally invasive procedures to repair a leaky heart valve.
And finally, Abbott Laboratories' dividend record is an excellent reason to invest in the company. Abbott is a Dividend King, a company that has raised its payouts for at least 50 consecutive years -- it has done so for 53 years straight, and won't stop anytime soon. That makes it an excellent pick for income seekers focused on the long game.
