Abbott's quarter disappoints again: We're downgrading it and considering what to do next

Abbott Laboratories shares fell 3% after its Q3 revenue of $11.37 billion missed consensus estimates, though adjusted EPS met expectations and organic sales (excluding Covid testing) surpassed forecasts. The company reported mixed segment performance, with strong Medical Devices growth, particularly in continuous glucose monitors, overshadowed by declines in Diagnostics and missed targets in Nutrition. Amid a second suboptimal quarter and concerns over China exposure, Jim Cramer's Investing Club downgraded ABT to a '3' rating, lowered its price target to $140, and is considering selling the stock, despite management tightening full-year EPS guidance in line with consensus.

Analysis

Abbott Laboratories reported a mixed third quarter, with revenue of $11.37 billion missing the $11.4 billion consensus, leading to a 3% share price decline. Despite this, organic sales, excluding Covid testing, grew 7.5%, surpassing the 5.9% estimate, and adjusted EPS of $1.30 met expectations. This marks the second consecutive suboptimal quarter for the diversified healthcare company.

Medical Devices was a standout, achieving 12.5% organic growth, primarily driven by a 17.2% organic increase in continuous glucose monitor sales to $2 billion. Conversely, Diagnostics sales were a drag, falling 7.8% organically due to a significant 28% decline in rapid diagnostics and reduced Covid testing revenue. The company also faces ongoing litigation regarding its infant formula and concerns about its exposure to China's sluggish healthcare sector.

Management tightened its full-year EPS outlook to a midpoint of $5.15, aligning with consensus, and anticipates 7.5% to 8% organic sales growth ex-Covid. Despite this, Jim Cramer's Investing Club downgraded ABT to a '3' rating and lowered its price target to $140 from $145, citing the repeated underperformance and a preference for reallocating capital to higher-conviction, larger positions like Nike. The club is considering selling ABT into strength, viewing Danaher as a better risk/reward setup.

Key Decisions for Investors

• Investors should re-evaluate their Abbott Laboratories position given the second consecutive suboptimal quarter, the analyst downgrade to a '3' rating, and the lowered price target of $140.
• Monitor the impact of ongoing infant formula litigation and the company's exposure to the challenging Chinese healthcare market, which remain significant overhangs.
• Consider reallocating capital towards higher-conviction opportunities, as suggested by the Investing Club's move to prioritize larger, better-performing positions over smaller, underperforming ones.