Why Abbott Laboratories Is a Q2 2025 Buy: Growth & Yield
Sound crazy, but it's true: the robust outlook wasn't enough to keep speculators interested, but it isn't the speculators that matter in the long term. What matters in the long term is that the company's growth trajectory is positive, supporting a robust capital outlook that includes dividends and share repurchases.
The combination of business growth, dividend distribution growth, and share repurchases serves as a lever for shareholder value that will propel the stock price to new highs.
And the capital return is significant. The dividend is worth approximately 1.8% as of mid-July, is less than 50% of the earnings outlook, and has grown at a robust 10% CAGR over the past few years. Those are robust metrics for a Dividend Aristocrat, especially for a Dividend King like Abbott, which has increased its payout for over 50 years. That is a testament to management's foresight and execution, qualities that will continue to benefit investors in the long term.
Abbott's share repurchases are also significant, as they reduce the share count quarterly. The company reduced its share count incrementally in the first half of the year and is expected to continue reducing it through the end of the year.
Abbott Punished for Good Results, Solid Guidance
Abbott Laboratories had a solid quarter, with revenue growth topping 7.4%, reported, about 70 basis points better than expected, driven by strength in all regions and reporting segments. Organically, growth was reported at 6.9% and 7.5% excluding COVID-19 testing supplies.
Regionally, the U.S. was strongest at 8.7%, but the International Market was also solid at 6.6%. Segmentally, Diagnostics was the only weak point but was impacted by COVID, declining on a reported basis but rising incrementally organically. Other segments grew by at least 3%, led by a strong, industry-leading 12% gain in Medical Devices.
The margin news is also good. Revenue leverage and operational quality offset macroeconomic pressures, resulting in a 100-basis-point improvement in adjusted gross and operating margins. The net result is $1.26 in adjusted earnings, only as expected, but up a leveraged 10.5% compared to the slower 7.4% top-line growth.
The critical takeaway is that the cash flow is sufficient to sustain the capital return outlook, balance sheet health, and pipeline advancement, which support the stock price action over time. Regarding the pipeline, the company reported advancement of several key studies and one major approval for the quarter.
Guidance is the sticking point for market action in July. The company narrowed its revenue growth range, indicating solid growth of 7.5% to 8%, with earnings in line with the consensus figure. However, a stronger catalyst was needed to lift the share prices. Investors should focus on growth, earnings, cash flow, and the pipeline, which promises to sustain them all.
Analysts' Trends Provide Support for Abbott Laboratories in 2025
The analysts' trends are supportive of Abbott's stock price. The group issued a steady string of upgrades and price target revisions up to the day of the release, resulting in increasing coverage, firming sentiment, and a rising consensus price target.
The group has the stock pegged at Moderate Buy with a bullish bias, forecasting a 10% increase relative to the pre-release closing price. That is sufficient to put this market at a new all-time high when reached.
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