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Abbott stock (NYSE: ABT) currently trades at $105 per share, 25% below its peak level of over $140 seen in December 2021. In comparison, its peer Boston Scientific stock (NYSE: BSX) has seen a nearly 90% rise over this period. Abbott saw its stock trading at around $109 in late June 2022, just before the Fed started increasing rates, and is now marginally below that level, compared to 45% gains for the S&P 500 during this period. This underperformance can partly be attributed to a fall in sales after a pickup during the pandemic phase. Returning to the pre-inflation shock level of $140 means that ABT stock will have to gain 35% from here, and we think this will materialize over time. Our detailed analysis of Abbott’s upside post-inflation shock captures trends in the company’s stock during the turbulent market conditions seen over 2022. It compares these trends to the stock’s performance during the 2008 recession.

The performance of ABT stock with respect to the index has been lackluster. Returns for the stock were 29% in 2021, -22% in 2022, and 0% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 — indicating that ABT underperformed the S&P in 2022 and 2023. In fact, consistently beating the S&P 500 — in good times and bad — has been difficult over recent years for individual stocks; for heavyweights in the Health Care sector including UNH and JNJ, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.

Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could ABT face a similar situation as it did in 2022 and 2023 and underperform the S&P over the next 12 months — or will it see a strong jump? From a valuation perspective, ABT stock looks like it has some room for growth. We estimate Abbott’s Valuation to be $123 per share, reflecting over 15% upside from its current levels of $105. At its current levels, ABT stock is trading at a little under 23x forward earnings, compared to the 25x average seen over the last three years.

2022 Inflation Shock
Timeline of Inflation Shock So Far:

• 2020 – early 2021: Increase in money supply to cushion the impact of lockdowns led to high demand for goods; producers unable to match up.
• Early 2021: Shipping snarls and worker shortages from the coronavirus pandemic continue to hurt supply.
• April 2021: Inflation rates cross 4% and increase rapidly.
• Early 2022: Energy and food prices spike due to the Russian invasion of Ukraine. Fed begins its rate hike process.
• June 2022: Inflation levels peak at 9% – the highest level in 40 years. The S&P 500 index declined more than 20% from peak levels.
• July – September 2022: Fed hikes interest rates aggressively – resulting in an initial recovery in the S&P 500 followed by another sharp decline.
• October 2022 – July 2023: Fed continues rate hike process; improving market sentiments helps S&P500 recoup some of its losses.
• Since August 2023: Fed has kept interest rates unchanged to quell fears of a recession, and it is prepared for rate cuts in 2024 and 2025.

In contrast, here’s how ABT stock and the broader market performed during the 2007/2008 crisis.

Timeline of 2007-08 Crisis

• 10/1/2007: Approximate pre-crisis peak in S&P 500 index
• 9/1/2008 – 10/1/2008: Accelerated market decline corresponding to Lehman bankruptcy filing (9/15/08)
• 3/1/2009: Approximate bottoming out of S&P 500 index
• 12/31/2009: Initial recovery to levels before accelerated decline (around 9/1/2008)

ABT and S&P 500 Performance During 2007-08 Crisis

ABT stock rose from $26 in September 2007 to $28 in August 2008 (pre-crisis peak) before falling to around $22 in March 2009 (as the markets bottomed out), implying ABT stock lost nearly 20% of its pre-crisis value. It recovered post the 2008 crisis to levels of around $26 in early 2010, rising 14% between March 2009 and January 2010. The S&P 500 Index saw a decline of 51%, falling from levels of 1,540 in September 2007 to 757 in March 2009. It then rallied 48% between March 2009 and January 2010 to reach levels of 1,124.

ABT Fundamentals Over Recent Years

Abbott’s revenues rose from $34.6 billion in 2020 to $43.7 billion in 2022, as the Covid-19 outbreak resulted in very high demand for testing, driving the company’s diagnostics business. However, revenues declined to $40.1 billion in 2023, amid falling demand for Covid-19 testing. Abbott’s operating margin improved slightly from 15.5% in 2020 to 16.2% in 2023. Its reported earnings increased from $2.50 to $3.26 over this period.

Does Abbott Have A Sufficient Cash Cushion To Meet Its Obligations Through The Ongoing Inflation Shock?

Abbott’s total debt decreased from $20 billion in 2020 to $15 billion now, while its total cash decreased slightly from around $7.1 billion to $6.7 billion over the same period. The company garnered $7.1 billion in cash flows from operations in the last twelve months. Given its solid cash position, Abbott appears to be in a comfortable position to meet its near-term obligations.

Conclusion

With the Fed’s efforts to tame runaway inflation rates helping market sentiments, we believe Abbott (ABT) stock has the potential for more gains once fears of a potential recession are allayed. Abbott should benefit from gains for its diabetes device – FreeStyle Libre. Also, the rise in overall procedure volume lately should bode well for its stock.

While ABT stock looks like it can see more gains, it is helpful to see how Abbott’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

[1] Returns as of 6/27/2024
[2] Cumulative total returns since the end of 2016

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.