Abbott Laboratories (NYSE: ABT) presents a compelling investment opportunity within the diversified healthcare sector. Its robust portfolio spans medical devices, diagnostics, nutrition, and established pharmaceuticals, demonstrating consistent financial performance and a commitment to dividend growth. This report provides an in-depth analysis of Abbott’s business, competitive landscape, and future prospects, culminating in a BUY recommendation with a 12-month price target of $135.
Industry Overview
The global healthcare market is experiencing dynamic growth, driven by ageing populations, rising chronic disease prevalence, and increasing demand for innovative medical solutions. Technological advancements in areas like continuous glucose monitoring (CGM) and molecular diagnostics are transforming patient care and creating attractive investment opportunities. However, the industry also faces challenges such as pricing pressures, regulatory scrutiny, and evolving reimbursement landscapes.
Company Analysis
Abbott’s diversified business model provides resilience against sector-specific headwinds. Its leading position in the rapidly expanding CGM market, spearheaded by the FreeStyle Libre system, offers significant growth potential. The diagnostics segment, while facing near-term challenges, benefits from Abbott’s extensive global reach and ongoing innovation in areas like point-of-care and molecular testing. The nutrition and established pharmaceuticals segments provide stable cash flow and contribute to Abbott’s overall financial strength.
Competitive Advantages
Abbott maintains several key competitive advantages:
- Strong brand recognition and established relationships with healthcare providers.
- Extensive intellectual property portfolio protecting key technologies.
- Global scale and distribution network, particularly in emerging markets.
- Commitment to research and development, driving innovation across all segments.
Financial Performance
Abbott has consistently delivered strong financial results. As per their Q2 2025 report1,2,3,4, the company achieved $11.14 billion in revenue, representing a 7.4% year-over-year increase. Adjusted earnings per share (EPS) grew by 12% to $1.26. The medical devices segment, led by the FreeStyle Libre, experienced particularly robust growth. While the diagnostics segment faced temporary headwinds, the company’s overall financial performance remains solid.
Investment Thesis
Our investment thesis rests on Abbott’s durable competitive advantages, diversified portfolio, and strong growth prospects in key market segments. The company’s leadership in CGM, coupled with ongoing innovation in diagnostics and expansion in emerging markets, positions it for sustained long-term growth. We believe the current valuation underestimates the long-term potential of the FreeStyle Libre franchise and the company’s ability to navigate near-term challenges in the diagnostics market.
Valuation & Forecasts
We employed a combination of valuation methods to arrive at our price target:
| Method | Assumptions | Valuation |
|---|---|---|
| Discounted Cash Flow (DCF) | WACC: 8.5%, Terminal Growth Rate: 3% | $140 |
| Price-to-Earnings (P/E) Multiple | 25x FY2026 Estimated EPS of $5.60 | $140 |
Our base case forecast projects a 10% CAGR in EPS over the next three to five years, driven by continued growth in the medical devices segment, stabilisation in diagnostics, and margin expansion across the business. We have also conducted scenario analysis to assess the potential impact of various macroeconomic and industry-specific factors.
Risks
Key risks to our investment thesis include:
- Increased competition in the CGM market.
- Pricing pressures and reimbursement challenges in the diagnostics segment.
- Regulatory headwinds and potential product recalls.
- Negative impact of foreign exchange fluctuations.
We believe these risks are manageable given Abbott’s competitive strengths and diversified business model.
Recommendation
We recommend a BUY rating for Abbott Laboratories with a 12-month price target of $135, representing a 25% upside from the current share price. We believe Abbott offers a compelling combination of growth and stability, making it a suitable investment for long-term investors seeking exposure to the healthcare sector.
1Abbott Reports Second-Quarter 2025 Results
2Abbott Reports Second-Quarter 2025 Results (PR Newswire)
3Abbott Reports First-Quarter 2025 Results
4Abbott’s Diversified Healthcare Leadership Fuels Q2 Results
