Here’s why Abbott is a great buy even as COVID testing revenue plummets


Abbott Laboratories (ABT 0.19% ) is a leader in coronavirus testing. Its lab tests and rapid tests have brought in billions of dollars in revenue. In the fourth quarter of last year, for example, Abbott generated $2.3 billion from its COVID-19 testing. And the company said demand remained strong at the start of this year as the omicron variant gained traction.

But coronavirus testing revenue isn’t sure to gain every quarter and every year. It has tapered off in the past. And it is likely to decrease again in the future as the number of coronavirus cases decreases. But that doesn’t change my view of Abbott as a great buy. The next two graphs show that this healthcare company has other elements to increase its revenue.

Image source: Getty Images.

Four businesses to generate income

First, it’s important to keep in mind that Abbott has four businesses: nutrition, diagnostics, established pharmaceuticals, and medical devices. Medical devices have historically generated a significant portion of revenue. But that business has suffered the worst of the pandemic, as many surgeries have been postponed.

Now let’s go to the first table. This shows that Abbott is the second largest company in the cardiology medical technology market. It holds 17% of the market in 2017. By 2024, it might lose some market share. Abbott’s share is expected to fall to 15.4%. But Abbott will always remain in second place.

This graph shows the companies' market share in the cardiology medical technology market.

Today, Abbott generates billions of dollars in revenue from the cardiology market. Last year, its cardiology medical device segments generated more than $9 billion in revenue. And the company continues to launch new products in this market. They will be the revenue generators down the road.

The diabetes market

The second graph refers to the diabetes market. Abbott is already a big player here. The company sells the FreeStyle Libre Continuous Glucose Monitoring System, a best-selling in the field. In the last quarter, sales of FreeStyle Libre jumped over 35% to $1 billion. And diabetes care generated more than $4.3 billion for Abbott for the year as a whole. The following graph shows that today approximately 537 million people worldwide are living with diabetes. This number is expected to reach 783 million by 2045. This trend means that more and more patients may turn to Abbott for help in managing their condition.

This graph shows the number of people with diabetes today and the predictions for the future.

Together, these two charts show two important revenue drivers for Abbott today and in the years to come. I don’t expect coronavirus testing revenue to go away. Businesses, schools and organizations around the world may continue to recommend testing at certain times after the pandemic is over. But even if Abbott ultimately sells far fewer tests than today, I’m not worried. Abbott’s medical device business is likely to secure huge revenues over time.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.


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