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Analysis

Stock Analysis: COVID-19 testing kit gives Abbott (ABT) an edge over Boston Scientific (BSX)

When Wall Street suffered huge losses after business activity was disrupted across the country due to the COVID-19 outbreak, one industry that remained relatively resilient to the market crash was healthcare services. The reason is probably the market’s confidence in the relevance of healthcare companies at a time when the world is in the grip […]

$ABT April 14, 2020 3 min read

When Wall Street suffered huge losses after business activity was disrupted across the country due to the COVID-19 outbreak, one industry that remained relatively resilient to the market crash was healthcare services.

The reason is probably the market’s confidence in the relevance of healthcare companies at a time when the world is in the grip of a pandemic. Currently, drug makers are focused on research aimed at finding treatments for coronavirus, and some have made considerable progress in their efforts.

Fighting COVID-19

Abbott Laboratories (NYSE: ABT), which has been in the spotlight ever since it came up with a COVID-19 testing kit that caught regulators’ attention, is recovering fast from the pandemic-induced slump. The company’s medical devices segment accounted for more than two thirds of its revenues last year. But that did not make the other key segments – diagnostic and pharmaceuticals – less significant.

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Unlike Abbott, Boston Scientific Corp. (NYSE: BSX) is solely focused on medical device manufacturing and has a lower market cap. When it comes to the company’s stock performance, the recent pattern is almost similar to that of Abbott. The shares registered a 39% growth since mid-March when it slipped to the lowest level in nearly two years.

Bullish View

Going by the double-digit growth analysts project for the long term, both Abbott and Boston Scientific will likely maintain the uptrend as market conditions become more conducive. The analysts also recommend buying Abbott and Boston Scientific.

  • Boston Scientific Q4 2019 earnings infographic

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Considering the market volatility, prospective investors might find the low-priced Boston Scientific more attractive. But, that does not necessarily make it a safe investment. It’s a fact that the company strengthened its footprint in the overseas market with important acquisitions, and is planning a slew of product launches. Also, the performance of its key products, Cardiac Rhythm Management and EP, was impressive in 2019.

Mixed Outlook

That said, the company needs to successfully sail thorough the present crisis before being able to execute its growth initiatives effectively. So, it will have to deal with a lot of uncertainty in the near term. Underscoring the bleak sentiment, earlier this month, the company lowered the guidance for the first quarter, citing weak procedural volumes.

“As healthcare systems respond to the increasing demands of managing COVID-19, emergent procedures need to be prioritized to help enable increased hospital capacity. While we expect this to negatively impact short-term performance, we continue to believe in the excellent, long-term fundamentals of our company and will continue to manage through these challenges…”

Mike Mahoney, CEO of Boston Scientific

On the other hand, Abbott has emerged as a top player in the fight against the pandemic, with the ID NOW testing kit becoming an instant hit in the healthcare circles and securing positive reviews. One thing the country badly needs right now is an effective testing system capable of giving quick results. While the device performs best on first responders, the company has already shipped several thousands of units.

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Sure Bet  

Abbott’s stock, which is fast regaining strength, traded close to the pre-selloff levels this week. With only two days left for the company to report first-quarter earnings, the stock will likely stay high and gather more strength after the announcement.

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Some experts are of the view that Abbott might pull back slightly before the earnings report, even as volumes dip from the recent highs, offering a buying opportunity. That, combined with the company’s impressive dividend history, makes it a better investment than most others in the sector.

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