Abbott prevails in testing times

Those tests include a point-of-care kit that can deliver positive results in as a little as five minutes; a laboratory test for hospitals and reference labs; and an antibody test that can show whether someone has previously had the virus. Thanks to scaled-up manufacturing, the group expects to be able to ship 4m of the latter products in April alone.

Abbott’s important work in the fight against the virus was one of several bright spots in its recent first-quarter results, which came in better than analysts’ expectations. Indeed, while volumes for other routine tests declined during the period, the early benefits of the group’s Covid-19 capabilities meant that its overall diagnostics business saw a small 0.7 per cent uptick in organic sales – or a 0.8 per cent contraction on a reported basis – to $1.9bn (£1.4bn).

Looking ahead, JPMorgan thinks that continued testing could become normalised – like the monitoring carried out for seasonal flu. Any such scenario would, presumably, translate into some form of sustained demand for Abbott’s kits. Either way, the group is not overly reliant on diagnostics for revenue growth. Its business spans the entire healthcare spectrum, from nutrition to pharmaceuticals to medical devices, across 160 countries.

The advantages of that diversification and a focus on non-deferrable health needs were apparent in the group’s latest numbers. For the three months to March, its nutrition business enjoyed a 7.3 per cent improvement in organic revenues to $1.9bn – bolstered by American customers stocking up on children’s supplements ahead of ‘shelter-in-place’ guidance in March. Meanwhile, its pharmaceuticals division reported a 9.3 per cent sales lift to $1bn, with growth across countries including Russia, Brazil and parts of Latin America and Southeast Asia.

Finally, the medical devices segment – Abbott’s largest by revenue – saw a slight increase of 2.9 per cent to $2.9bn. Here, growth in the cardiovascular and neuromodulation arenas was knocked by reduced procedure volumes. But because of the critical nature of its products, Abbott expects greater demand when the availability of healthcare resources returns to more typical levels.

True, the group did suspend its full-year guidance within this quarterly update – linking its decision to the “uncertainties regarding the duration and impact of the coronavirus”. But such a move was not unexpected; many other companies have done the same. It is impossible to say when the pandemic will end – and it is very feasible that Abbott will face further disruption in the coming months.

That said, Abbott has a strong recent track record – based on S&P Capital IQ data, the compound annual revenue growth rate (CAGR) is 13 per cent over the last three years, while the equivalent figure for EPS is 30 per cent. This exceptional EPS growth was in part due to Abbott’s share buyback programme, which has reduced the number of shares in issue. Last year alone, the group bought up 6.3m shares for $525m. And in October, well before coronavirus became a concern, it approved a scheme to repurchase 3bn more shares.

Beyond buybacks, Abbott has also paid dividends for 96 consecutive years – and has raised its payout for 48 years in a row, keeping it well within index-provider S&P’s roster of ‘Dividend Aristocrats’. And the group still plans to pay a quarterly dividend in mid-May. That said, is feasible that returns to shareholders could be reduced or frozen as the virus outbreak rages on.

As things stand the balance sheet looks reasonably robust, though. At last count, Abbott had about $3.7bn in cash, cash equivalents and short-term investments, and revolving credit facilities of up to $5bn in place, which could give it extra headroom if required.