Abbott Labs delivered a second-quarter earnings beat on Thursday, but the company’s ongoing litigation over its baby formula — plus softer guidance for the current quarter — is dragging down shares. We view the pullback as an opportunity. Revenue for the three months ended June 30 rose 4% year over year to $10.38 billion, slightly ahead of expectations, according to LSEG. On an organic basis, sales were up 9.3% versus the year-ago period (excluding Covid testing sales), also ahead of expectations. Earnings per share advanced over 5% to $1.14, which outpaced the Street’s estimate of $1.10 per share. Abbott Laboratories Why we own it : Abbott is a high-quality medtech company growing at a fast clip. The stock has been dealing with two overhangs: falling Covid testing sales and concerns that GLP-1 adoption will disrupt its leading continuous glucose monitor. As Abbott’s organic sales growth continues to shine, the market will realize both concerns are overblown. Competitors : Dexcom and Edwards Lifesciences Weight in Club portfolio : 2.89% Most recent buy : 5/29/2024 Initiated : Jan. 29, 2024 Bottom line This was a quality quarter from Abbott. The sell-off is partly a result of the ongoing necrotizing enterocolitis (NEC) lawsuits. Plaintiffs claim that Abbott’s formula for preterm infants used in neonatal intensive care units causes a potentially deadly bowel disease. Abbott argues that its products for premature infants are life-saving and called the lawsuits meritless. Nevertheless, the litigation is a major overhang for the stock. And there is a chance Abbott loses the first case, which started this month. The court in Missouri is considered plaintiff friendly. Abbott has already shed more than $30 billion in market cap since March, far exceeding the amount of any potentially settlement. This makes Thursday’s pullback a buying opportunity. Shares are even more attractive when we consider the company’s pipeline. Abbott recently received approval for two new over-the-counter (OTC) continuous glucose monitoring systems — Lingo and Libre Rio — based on the highly successful FreeStyle Libre. The OTC options may be new to the United States, but Abbott has been selling market-leading OTC glucose monitoring products internationally since the Libre launched 10 years ago. The FreeStyle Libre itself, which had 20% organic growth in the quarter, also still has plenty of runway for further growth. In the U.S., there are still about one-third of multiple daily injectors that aren’t using a continuous glucose monitor, and in internationally developed markets it’s around 50%. Moreover, as noted on the release, the company announced ten new growth opportunities in the first half of the year that are still in the R & D pipeline. “We continue to make good progress on our gross margin initiatives and more importantly our pipeline continues to be highly productive and thus we’re well-positioned to deliver strong results for the remainder of the year,”…
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