According to Wall Street analyst, Abbott Laboratories stock could rise to $143. Is it a buy at around $108?
According to an optimistic Wall Street analyst Abbott Laboratories (NYSE: ABT) Stock could deliver better performance for investors. Following the company’s latest earnings report, Matt Miksic of Barclays maintained its buy rating and raised its price target to $143 per share.
At current prices, Miksic’s price target predicts an increase of about 32% once the rest of the stock market views Abbott Laboratories in the same light as he does.
In the “Pro” column, Abbott Laboratories recently announced a favorable deal with Medtronic (NYSE: MDT)another leading medical device manufacturer. In the “con” column, Abbott was hit with a large fine in connection with a baby formula lawsuit.
Can Abbott overcome its challenges and deliver market-beating performance? Let’s look at both sides.
Reasons to buy Abbott Laboratories now
It’s been over 100 years since Abbott Laboratories shareholders haven’t received a quarterly dividend payment. What’s more, the company has increased its payout for 52 consecutive years. At current prices, the stock offers an uninspiring 2% yield but could become a great source of passive income in the years to come.
Abbott’s dividend payout isn’t just rising, it’s skyrocketing. It’s up 72% over the past five years, thanks in part to the company’s success in diabetes device sales, which could continue to rise.
The latest version of Abbott’s continuous glucose monitor (CGM), FreeStyle Libre 3, was launched in the U.S. market in late 2022. That was about eight months before its biggest competitor, Dexcom‘s G7.
Abbott maintained its lead in the second quarter with revenue increasing 18.4% to $1.6 billion. During the same period, Dexcom reported revenue increasing 15% to $1 billion.
As a diversified conglomerate, Abbott can afford to offer its CGM products at competitive prices. And that’s not the only reason why the company can be expected to continue to dominate in this space. Recently, Abbott announced a new partnership with Medtronic, the world’s leading medical device manufacturer.
Abbott will contribute CGM technology to a new integrated system that includes Medtronic’s automated insulin delivery technology and smart insulin pens.
Abbott’s CGM franchise is a key growth driver, but it’s not the only revenue stream that’s growing. The company’s nutrition and established pharmaceuticals segments saw strong growth last quarter, as did diagnostics, excluding the impact of Covid-19 testing.
With all business segments moving in the right direction, Abbott reported total revenue for the first half of the year that increased 10% year-on-year, excluding Covid-19 testing and the negative impact of currency exchange.
Abbott’s shares are not as highly valued as one would expect from a company whose revenue is growing at a double-digit rate. At current prices, shares can be purchased for about 23 times the median of management’s adjusted earnings estimate for 2024.
Reasons to avoid Abbott Laboratories
While investors at Abbott are primarily interested in its innovative medical devices, the company is also a leading manufacturer of baby food and nutritional supplements for adults.
Abbott’s nutrition division, however, could become a burden. In July, a jury in St. Louis ordered the company to pay $495 million, alleging it concealed the risk that its premature baby formula could cause a serious intestinal complication called necrotizing enterocolitis (NEC). The company plans to appeal the ruling.
The latest ruling against Abbott is unlikely to be the last. At the end of January, Abbott was a party to 993 cases in state and federal courts.
Is the stock a buy now?
Abbott does not expect to suffer a significant loss from the NEC lawsuits and plans to appeal the recent ruling. I agree that it will be an uphill battle to prove that Abbott’s baby formula is responsible for the NEC cases, so there is a good chance that the initial verdict against Abbott can be overturned on appeal. Missouri civil law does not require unanimous jury verdicts, and in this case only nine out of twelve people agreed.
Last year, Abbott generated $5.7 billion in free cash flow, and the company only needed 65% of that amount to meet its dividend obligation. Even if the company ends up spending more than $1 billion in connection with the NEC lawsuits, it will still have enough profits left to invest in the future and increase its dividend payout. Buying the stock now and holding it for the long term seems like a smart move.
Should you invest $1,000 in Abbott Laboratories now?
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Cory Renauer does not own any of the stocks mentioned. The Motley Fool has a position in and recommends Abbott Laboratories. The Motley Fool recommends Barclays Plc, DexCom, and Medtronic and recommends the following options: long January 2026 $75 calls on Medtronic and short January 2026 $85 calls on Medtronic. The Motley Fool has a disclosure policy.
Abbott Laboratories stock could rise to $143, Wall Street analyst says. Is it a buy at around $108? was originally published by The Motley Fool
