Abbott Laboratories vs. Abiomed: Which Medical Devices Stock is a Better Investment?

Abbott Laboratories (ABT) in Abbott Park, Ill., and Danvers, Mass.-based Abiomed, Inc. (ABMD) are two prominent players in the medical devices industry. ABT discovers, develops, and sells health care products focused on cardiovascular, diabetes care, diagnostics, neuromodulation, nutrition, and medicine. The company operates through four segments: Established Pharmaceutical Products; Diagnostic Products; Nutritional Products; and Medical Devices. ABMD, in comparison, manufactures and markets medical devices and technologies that provide circulatory support and oxygenation. It also provides a continuum of care to heart failure patients. Both companies sell their products through direct sales and clinical support personnel worldwide.

As the categorization of medical procedures into essential and non-essential led to a decline in non-COVID-19 related medical procedures last year, the medical devices industry suffered a significant setback. However, solid progress on the vaccination front facilitated a rebound in demand for medical devices this year, primarily for rescheduled surgeries. Moreover, continued product innovations, the integration of artificial intelligence (AI), and entry into new market divisions position the industry well for solid long-term growth. The global medical devices market is expected to grow at a 5.2% CAGR to $671.49 billion by 2027. So, both ABT and ABMD are expected to benefit.

But while ABT gained 7.3% in price year-to-date, ABMD has surged 8.3%. ABMD is also a clear winner with 22.5% gains versus ABT’s 9.5% returns in terms of the past year's performance. But which of these stocks is a better pick now? Let’s find out.

Click here to checkout our Healthcare Sector Report for 2021

Latest Developments

On September 29, 2021, the U.S. Food and Drug Administration (FDA) approved ABT’s Amplatzer Talisman PFO Occlusion System to treat people with a patent foramen ovale (PFO), who are at risk of recurrent ischemic stroke. This new Talisman system helps doctors treat a broader range of patient anatomies and simplifies the preparation needed for PFO occlusion procedures. ABT expects to witness high demand for this system in the coming months.

On August 18, 2021, the FDA granted breakthrough device designation to ABMD’s Impella ECP expandable percutaneous heart pump. As the world’s smallest heart pump, Impella ECP can provide even safer procedures and become available to more patients who need hemodynamic support for coronary revascularization.

Recent Financial Results

ABT's net sales for its fiscal second quarter, ended June 30, 2021, came in at $10.22 billion, representing a 39.5% increase from the prior-year period. The company’s adjusted gross profit increased 41.8% year-over-year to $5.82 billion. Its adjusted operating income has been reported at $2.47 billion for the quarter, up 99.6% from the prior-year period. While its adjusted net earnings increased 107.8% year-over-year to $2.12 billion, its adjusted EPS increased 105.3% to $1.17. ABT had cash and cash equivalents of 8.66 billion as of June 30, 2021.

For its fiscal second quarter, ended June 30, 2021, ABMD’s revenue increased 53.2% year-over-year to $252.59 million. The company’s non-GAAP income from operations came in at $66.21 million, representing a 94.3% rise from the year-ago period. While its non-GAAP net income increased 97.1% year-over-year to $51.05 million, its non-GAAP EPS increased 89.7% year-over-year to $1.10. As of June 30, 2021, the company had $175.45 million in cash and cash equivalents.

Past and Expected Financial Performance

ABT’s EPS and net income have grown at CAGRs of 97% and 90.2%, respectively, over the past three years. The company’s revenue has grown at a CAGR of 10.8% over the past three years.

Analysts expect ABT’s EPS to increase 21.9% year-over-year in the current year and 4.5% next year. Its revenue is expected to grow 15.5% in the current year and decline 1.7% next year. The stock’s EPS is expected to grow at a 12.5% rate per annum over the next five years.

In comparison, ABMD’s EPS and net income have declined at CAGRs of 1.9% and 2.2%, respectively, over the past three years. The company’s revenue has grown at a 13.4% CAGR over the past three years.

Analysts expect ABMD’s EPS to decline 11.3% year-over-year in the current year and rise 21.7% next year. Its revenue is expected to increase 23% year-over-year in the current year and 14.9% next year. Analysts expect the stock’s EPS to grow at a 10% rate per annum over the next five years.

Valuation

In terms of non-GAAP forward PEG, ABMD is currently trading at 6.13x, which is 214.4% higher than ABT’s 1.95x. In terms of forward EV/Sales, ABT’s 5.46x compares with ABMD’s 14.53x.

Profitability

ABT’s trailing-12-month revenue is almost 43 times higher than ABMD’s. However, ABMD is more profitable, with an 81.7% gross profit margin versus ABT’s 57%.

Also, ABMD’s ROA and ROTC values of 12.2% and 13.7%, respectively, compare with ABT’s 7.2% and 9.9%.

POWR Ratings

While ABMD has an overall C grade, which translates to Neutral in our proprietary POWR Ratings system, ABT has an overall A grade, equating to Strong Buy. The POWR Ratings are calculated by considering 118 distinct factors, each weighted to an optimal degree.

ABT has a B grade for Growth, which is consistent with its impressive year-over-year earnings growth. ABT’s EBITDA has grown 56.2% from the prior-year period. However, ABMD’s C grade for Growth is in sync with its relatively lower 18.8% EBITDA growth.

ABT has a B grade for Value, which is consistent with its lower-than-industry valuation ratios. The company has a 5.46x forward EV/Sales, which is 20.1% lower than the 6.83x industry average. However, ABMD’s D grade for Value reflects its overvaluation. ABMD’s 14.53x forward EV/Sales is 112.7% higher than the 6.83x industry average.

Of the 210 stocks in the Medical - Pharmaceuticals industry, ABT is ranked #6. ABMD is ranked #86 of 182 stocks in the Medical - Devices & Equipment industry.

Beyond what we’ve stated above, our POWR Ratings system has also rated ABT and ABMD for Stability, Momentum, Quality, and Sentiment. Get all ABMD ratings here. Also, click here to see the additional POWR Ratings for ABT.

The Winner

The medical devices industry’s solid recovery and long-term growth prospects should benefit both ABT and ABMD. However, relatively lower valuation and better analyst sentiment make ABT a better buy here.

Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to access the top-rated stocks in the Medical - Pharmaceuticals industry, and here for those in the Medical - Devices & Equipment industry.

Click here to checkout our Healthcare Sector Report for 2021

ABT shares were unchanged in after-hours trading Tuesday. Year-to-date, ABT has gained 10.68%, versus a 21.71% rise in the benchmark S&P 500 index during the same period.

Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.

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