Abbott Laboratories (ABT) , an original member of Sarge's "pandemic portfolio" and still a long position on my book, reported the firm's third quarter financial performance on Wednesday morning. The firm posted adjusted EPS of $1.40 (+42.9%), crushing estimates of less than one dollar. Including all nonrecurring items, GAAP EPS landed at $1.17, still easily beating Wall Street. The firm generated $10.93 billion in revenue over the three month period, good for annual organic growth of 22.8%, and good enough to beat consensus view by almost $1.4 billion. Astounding.
For the third quarter gross margin expanded from 57.4% to 58.8% as operating earnings increased 70.2% and operating expenses increased 13.9%. The firm's "as reported" tax rate increased from Q3 2020 (13.3%) to 15.7% in Q3 2021, but excluding specified items actually dropped from 15.6% to 15.5%.
The Breakdown
As far as segment performance goes, Diagnostics contributed revenue of $3.912 billion, almost evenly split between the U.S. and international markets. This print is up 48.2% year over year on 71.8% domestic growth and 30.5% growth elsewhere. The driver for the Diagnostics segment is Rapid Diagnostics, where year over year growth printed up 161.4% as rapid COVID testing continues to see ongoing demand. COVID-19 testing alone added $1.9 billion to sales for the quarter. Ex- COVID testing sales, organic revenue growth corporation wide drops from that impressive 22.8% to 11.7%.
Nutrition kicked in sales of $2.108 billion which was good for 9.6% growth. This unit too is growing more quickly inside the U.S. (+12.3%) than internationally (+7.6%). Established Pharmaceutical sales is a strictly international business, and sales there increased 15.1% to $1.265 billion.
Guidance
Abbott projects full year GAAP EPS from continuing operations to print in between $3.55 and $3.65, and adjusted EPS to land in a range spanning $5.00 to $5.10 versus prior guidance of $4.30 to $4.50, and Wall Street's consensus of $4.45. Earlier this month, the Biden administration indicated that it would be making an additional $1 billion investment in at-home testing for COVID.
The Chart
Readers will see that ABT shares took a serious hit on June 1st, ironically because the firm reduced guidance due to less demand for COVID-19 testing. That was "pre-Delta" variant. The stock rallied 23% off of that low into early September. At that point, the shares performed a standard 61.8% Fibonacci retracement of the rally with precision, before turning for the positive.
The shares came in this morning far from overbought, but after the opening, that has started to change. The pivot becomes the old high of $129, which is matched by a similar high from back in February. Should we see a take and hold of that pivot, I think a target price in the low to mid $150's becomes quite possible, as I would think that domestically and especially internationally, COVID testing is going to drive sales for several years. Just an opinion.
Trade Idea
You know I'm long the shares. One limited risk idea in an attempt to juice the position would be to go long a bull call spread where the long call is currently deep in the money and the short call just out of the money. In other words, a trader could grab the $120 December calls for $6.50, and sell the $125 December calls for about $3.50. The spread is purchased for a net debit of $3 (max risk). However, should the shares rise above $125 by expiration, the trader wins back $5, for a net profit of $2
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