Is Abbott Stock Worth Buying at a Discounted P/S Valuation?

Like all its peers, Abbott Laboratories ABT faced the industrywide challenges of margin pressure through 2024, stemming from growing inflation, labor shortages and supply chain disruptions, which increased operational costs. However, the company’s ability to pivot and deliver solid results in key areas underscores its resilience and strategic acumen. The company is poised to conclude 2024 on a strong and optimistic trajectory, focusing largely on strategic investments and operational efficiency.Abbott is trading at a forward 12-month price-to-sales (P/S) multiple of 4.4X, a 22% discount to the Zacks Medical Products industry average of 5.6X. This valuation is below Abbott's five-year median of 4.74X, indicating that the stock is falling into undervalued territory.Compared to its peers, ABT’s valuation is below Boston Scientific BSX (7.18X) but above Medtronic MDT (3.03X).Image Source: Zacks Investment ResearchOver the past six months, the stock has risen 9.6%, outperforming the industry’s 8.5% growth as well as the broader Medical sector’s 9.8% decline. The stock also largely outperformed MDT’s 2.7% growth but lagged BSX’s 18.2% rally.Six-month Price ComparisonImage Source: Zacks Investment ResearchA Year of Triumph and ChallengesAbbott’s diversified business portfolio drove the continued momentum in 2024. Accelerated investments in the R&D pipeline yielded positive results. In September, the company announced a new partnership with the Big Ten conference to help boost U.S. blood supply through a blood donation competition. The company is also progressing with its Alinity family of diagnostics. With several recent large contract wins, Alinity is expected to have significantly contributed to Abbott’s Diagnostics business in the second half of 2024 (yet to be reported).Freestyle Libre CGM device is also on a great trajectory. Abbott currently has partnerships with five of the largest companies that offer automated insulin dosing pumps, allowing more people around the world to benefit from the connectivity with the Libre technology. Recently, the company made the U.S. launch of Lingo, its new glucose monitoring sensor available for purchase without a prescription.Within Nutrition, despite softness in the global pediatric arm, Abbott is regaining market share, banking on a strong Adult Nutrition business.Challenges, however, came largely in the form of runoff of COVID-19 revenues. Since the official ending of the public health emergency in May 2023, Abbott has been experiencing a continuous decline in COVID testing-related demand. In Rapid Diagnostics, sales decreased 3% organically in the last-reported third quarter of 2024 due to the lower demand for COVID-19 tests. Within Molecular Diagnostics too, organic sales plunged 2.1% year over year. In the fourth-quarter months, too, a year-over-year decline in testing demand is expected to mar Abbott’s overall Diagnostics business sales growth.Further, as we stated earlier, a challenging macroeconomic scenario in the form of the ongoing complex geo-political situation globally, specifically where Abbott operates, is driving a higher-than-anticipated increase in expenses in terms of raw materials and freight. These could also result in broader economic impacts and security concerns, affecting the company’s business in the upcoming months. Industrywide, it has been seen that a deteriorating global economic environment is reducing demand for several MedTech products, resulting in lower sales and lower product prices while increasing the cost of goods and operating expenses of the businesses of the MedTech companies.In the third quarter of 2024, Abbott incurred a 2.1% increase in the cost of products sold (excluding amortization expense). Selling, general and administration expenses were up 6.3% year over year.Long-Term Prospects BrightIn Diagnostics, on a global scale, Abbott has been gaining a prominent position in point-of-care testing, with a portfolio focused on four key areas such as Infectious Disease, Cardiometabolic & Informatics, Toxicology and Consumer Diagnostics. In rapid and point-of-care diagnostics businesses, the company is consistently expanding its test menus and is also capitalizing on the growing demand for respiratory tests that can be performed at home or in more traditional healthcare settings.Meanwhile, within Established Pharmaceuticals Division (EPD), the company is strategically progressing with its advancement in biosimilars. Abbott, leveraging on its leading presence in emerging markets, is enjoying a unique opportunity to scale a licensing model that is capital-efficient and can bring access to these life-changing medicines to the emerging market population. In this line, the company agreed to commercialize several biosimilars in the areas of oncology and women’s health in 2023. The first round of commercialization is on track for 2025. Recently, the company completed additional agreements to get access to biosimilar versions of market-leading autoimmune disease and GLP1 medications. The company is highly optimistic about this initiative, considering the fact that biosimilars represent the highest growth segment in the branded generic pharmaceutical market.Within Diabetes Care, the company is fast gaining momentum, leveraging consistent upgrades of its flagship, sensor-based continuous glucose monitoring system, FreeStyle Libre.Moving Averages Indicate Mixed SignalsABT is trading above its 200-day simple moving average (SMA), indicating solid long-term momentum. However, it is slightly below its 50-day SMA, reflecting near-term volatility.50 & 200-Day SMAsImage Source: Zacks Investment ResearchHigh Return on Equity for ABT StockABT’s trailing 12-month return on equity (ROE) of 20.18% significantly outpaces the average earned by companies in the Medical Products industry (16.61%). This superior ROE underscores Abbott’s efficient management and ability to generate strong returns for shareholders, further reinforcing its investment appeal.Image Source: Zacks Investment ResearchWhy Abbott Stock is a BuyAbbott’s diversified business model has been a significant factor in its consistent performance. It has also helped the company to mitigate risks associated with market fluctuations in any single segment. The company’s strong market position, promising growth prospects and consistent share gains make it a compelling stock to keep in the portfolio.Apart from its discounted valuation compared to the industry average, Abbott’s strong ROE also indicates that the company is good at turning equity capital into net income, suggesting strong operational efficiency. Even amid the challenging scenario in terms of profit margins, this shows that the business is still generating significant earnings relative to the equity invested by shareholders.Further, Abbott’s financial strength, evidenced by its strong cash flow and conservative leverage profile, enhances its ability to invest in growth opportunities. The stock’s Zacks Rank #2 (Buy) underscores its upward potential. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.Free: 5 Stocks to Buy As Infrastructure Spending SoarsTrillions of dollars in Federal funds have been earmarked to repair and upgrade America’s infrastructure. In addition to roads and bridges, this flood of cash will pour into AI data centers, renewable energy sources and more.In, you’ll discover 5 surprising stocks positioned to profit the most from the spending spree that’s just getting started in this space.Download How to Profit from the Trillion-Dollar Infrastructure Boom absolutely free today.Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Abbott Laboratories (ABT): Free Stock Analysis Report Boston Scientific Corporation (BSX): Free Stock Analysis Report Medtronic PLC (MDT): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks