Earnings Preview: Abbott Labs

Abbott Laboratories (ABT) is all set to announce its second quarter 2011 results on July 20, 2011 before the opening bell. The Zacks Consensus Estimate for the second quarter is $1.11, representing a year-over-year increase of 9.9%.

The Zacks Consensus Estimate is within the guidance range of $1.10 to $1.12 provided by the company while releasing its first quarter results. Abbott Labs has surpassed earnings estimates consistently in the last four quarters with a trailing average of 0.96%.

First Quarter 2011 Recap

Abbott reported first quarter earnings of $0.91 per share, a penny above the Zacks Consensus Estimate. Earnings increased 12.3% from the year-earlier period. Higher revenues helped drive results. However, including one-time items, earnings declined 14.1% to $0.55 per share.

First quarter revenues increased 17.4% to $9.0 billion, slightly above the Zacks Consensus Estimate of $8.8 billion. (Read our full coverage of the first quarter 2011 earnings report at Marginal Beat for Abbott Labs).

Agreement of Estimate Revisions

Estimate revisions for Abbott Labs have been scarce over the past month. Over the past 30 days, only 4 analysts covering Abbott Labs have revised their earnings estimates for the second quarter of 2011. While 3 of them have increased their earnings estimates, one has moved in the opposite direction. The annual estimates for 2011 have not been revised by the majority of analysts either. Only 3 of the 22 analysts following Abbott Labs for 2011 have revised their estimates; all of them to the upside.

Concerns like the impact of US health care reform, product recalls, foreign exchange headwinds and EU pricing austerity and generic competition continue to hurt Abbott, but its pharmaceutical products should continue driving growth led by key drug Humira, an anti-inflammatory product.

Humira is quickly becoming the anti-tumor necrosis factor (TNF) drug of choice, gaining sizable market share from Amgen /Pfizer’s (AMGN/PFE) Enbrel and Johnson & Johnson’s (JNJ) Remicade. Currently approved for several indications, we believe Humira has blockbuster potential in the psoriasis indication alone given its first-in-class efficacy and convenient self-administration.

Growing awareness, favorable clinical data, additional indications and expansion into new markets like China and Japan should help the product to continue contributing significantly to the top-line. Abbott expects Humira sales to show double-digit growth (low teens) in 2011.

Moreover, Abbott’s growth by acquisition strategy should help the company in expanding its reach further. In addition to acquisitions, Abbott has been utilizing its cash for share repurchases and dividend payouts, thereby increasing shareholder value.

Magnitude of Estimate Revisions

Estimates for the second quarter and also for fiscal 2011 have remained static at $1.11 and $4.61 per share, respectively, in the last 30 days due to the lack of significant estimate revisions by analysts following the stock.

Neutral on Abbott Labs

We currently have a Neutral recommendation on Abbott Labs. The company carries a Zacks #3 Rank (short-term Hold rating). We believe Abbott Labs is weathering the storm relatively well despite facing the challenges mentioned above.

Abbott Labs’ strong business segments and contributions from recent acquisitions should help fortify long-term earnings growth. While lead product, Humira, will continue to be a huge growth driver in the next couple of years, we remain concerned about Abbott Labs’ dependence on the product. Moreover, the company’s pharma pipeline needs to deliver in order to drive long-term growth.

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