Abbott Laboratories (ABT) in Abbott Park, Ill., develops, manufactures, markets, and sells health care products worldwide. The company operates through four segments: Established Pharmaceutical Products; Diagnostic Products; Nutritional Products; and Medical Devices. In comparison, Edwards Lifesciences Corporation (EW) manufactures heart valve systems and repair products. The Irvine, Calif.-based company engages in patient-focused innovations for structural heart disease and critical care monitoring.
The medical device industry achieved a stellar recovery last year, driven by robust demand amid surging cases of chronic diseases, an aging population, and the emergence of new home monitoring medical devices. Furthermore, industry’s significant technological advances, including smart sensors, robotic surgery, 3D printing, and IoMT (Internet of Medical Things), should provide medical device companies with new growth opportunities. According to a report by SkyQuest, the global medical devices market is expected to reach $557.42 billion by 2027, growing at a 4.8% CAGR. Increasing investments by leading companies in the R&D to develop technologically advanced medical equipment should boost the market’s growth, which should benefit both ABT and EW.
ABT’s stock has gained 8.2% in price over the past year, while EW has gained marginally over this period. However, ABT’s shares have declined 16.7% year-to-date, while EW’s shares have declined 25.6%. Furthermore, ABT’s shares have gained 3.7% over the past month, in contrast to EW’s 4.1% decline during the same period.
Which stock is a better buy now? Let’s find out.
On May 31, 2022, ABT’s FreeStyle Libre 3 system received U.S. Food and Drug Administration (FDA) clearance. The FreeStyle Libre 3 system is a 14-day continuous glucose monitor that comprises various features, including great accuracy, with a 7.9% overall mean absolute relative difference (MARD) and the strongest Bluetooth integration with a range of up to 33 feet. This new diabetes technology is expected to boost the company’s business growth and profitability.
On March 31, 2022, EW received FDA approval for the MITRIS RESILIA valve, a tissue valve replacement designed for the heart’s mitral position. “It was important to design the MITRIS RESILIA valve to perform like the native mitral valve, handling the highest pressures in the heart and offering sustained hemodynamic performance, so that surgeons and patients can have confidence in this new therapy option,” said Daveen Chopra, Edwards’ corporate vice president, surgical structural heart. The introduction of the MITRIS RESILIA valve has completed the company’s portfolio of surgical heart valve innovations incorporating the advanced RESILIA tissue.
Recent Financials Results
ABT’s net sales have increased 13.8% year-over-year to $11.90 billion for its fiscal 2022 first quarter, ended March 31, 2022. The company’s adjusted earnings before taxes grew 29.2% year-over-year to $3.60 billion, while its adjusted net earnings came in at $3.08 billion, representing a 29.9% year-over-year increase. Also, its adjusted earnings per share came in at $1.73, up 31.1% year-over-year.
EW’s net sales increased 10.2% year-over-year to $1.34 billion for its fiscal 2022 first quarter, ended March 31, 2022. Its adjusted operating income grew 15.1% year-over-year to $444.70 million. Its adjusted net income increased 11.1% from its year-ago value to $378.30 million. Also, its adjusted earnings per share came in at $0.60, up 11.1% year-over-year.
Past and Expected Financial Performance
ABT’s revenue and EBITDA have grown at CAGRs of 13.2% and 23%, respectively, over the past three years. Analysts expect ABT’s revenue to rise marginally to $10.25 billion in the current quarter (ending June 30, 2022). The company’s EPS is expected to grow 1.4% year-over-year next year. Furthermore, its EPS is expected to grow at an 11.5% rate per annum over the next five years.
EW’s revenue and EBITDA have grown at CAGRs of 11.9% and 14.1%, respectively, over the past three years. Analysts expect the company’s revenue to increase 2.3% in its fiscal second quarter (ending June 30, 2022). The company’s EPS is expected to grow 10.9% next year. Furthermore, its EPS is expected to grow at a 13% rate per annum over the next five years.
ABT’s trailing-12-month revenue is 1.94 times what EW generates. However, EW is relatively more profitable, with 33.25% and 28.72% respective EBITDA and net income margins compared to ABT’s 30.28% and 17.35%.
Furthermore, EW’s 29.30%, 13.15%, and 17.30% respective ROE, ROA, and ROTC are higher than ABT’s 22.26%, 8.56%, and 11.97%.
In terms of forward non-GAAP P/E, EW is currently trading at 37.73x, which is 57.8% higher than ABT’s 23.91x. Furthermore, EW’s 29.46x forward EV/EBITDA is 64.4% higher than ABT’s 17.92x.
So, ABT is the more affordable stock.
ABT has an overall A rating, which equates to a Strong Buy in our proprietary POWR Ratings system. In contrast, EW has an overall C rating, which translates to Neutral. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
ABT has a grade of A for Growth. The company’s 1.75% forward ROE growth is 83.4% higher than the 0.95% industry average, in sync with the Growth grade. In contrast, EW has a Growth grade of C, which is consistent with the company’s negative forward ROE growth grade.
ABT also has a B grade for Stability, which is in sync with its 0.57 beta. In comparison, EW has a C grade for Stability, which is consistent with its 1.24 beta.
Of the 149 stocks in the Medical – Devices & Equipment industry, ABT is ranked #3. However, EW is ranked #37 out of 149 stocks in the same industry.
The substantial demand for advanced medical devices bodes well for ABT and EW. However, given the high market volatility, we think investing in the relatively stable stock ABT could be rewarding.
Our research shows that odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Medical – Devices & Equipment industry here.
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ABT shares were trading at $116.35 per share on Tuesday afternoon, down $0.07 (-0.06%). Year-to-date, ABT has declined -16.71%, versus a -12.48% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions. More...
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