Abbott Labs Slides After Yet Another Underwhelming Quarter, Downgrade on the Table

Abbott Laboratories (NYSE: ABT) saw its shares dip by 3% following a quarterly report that failed to excite. The company posted third-quarter revenue of $11.37 billion, up 6.9% year-over-year but just shy of the $11.4 billion street estimate. While organic sales, excluding Covid testing, outpaced expectations with a 7.5% increase versus the projected 5.9%, the headline figures lacked the punch traders usually crave.

On the earnings front, adjusted earnings per share landed right on the consensus at $1.30, representing a 7.4% rise. Still, this marked Abbott's second consecutive quarter missing the mark across the majority of its business segments, sparking internal debates about the stock's role.

Particularly under the microscope is Abbott's exposure to China's sluggish healthcare market, a point flagged during the Club's Morning Meeting discussion. Fellow portfolio component Danaher (NYSE: DHR), also feeling the China pinch, is showing signs of stabilizing, muddling the case for maintaining holdings in both names. With Danaher sliding more than 25% from its highs but bouncing off the lows and Abbott hovering within 10% of its peak, the risk/reward scales seem to be tipping.

Legal troubles continue to lurk, centered on Abbott's specialized formula for premature infants. The company faces lawsuits claiming insufficient warnings about necrotizing enterocolitis risks, an intestinal disease. Abbott maintains strong confidence in its product's safety, though the proceedings remain unresolved.

Breaking down segment performance, Abbott's Medical Devices arm was the lone bright spot with a 12.5% organic sales gain, thanks largely to robust growth in diabetes care and cardiac products. Continuous glucose monitors, a key diabetes care product, soared 17.2% to $2 billion in sales.

On the flip side, Diagnostics stumbled, with a near 8% drop driven by a nearly 28% decline in rapid diagnostics sales. Core laboratory diagnostics actually managed modest growth, especially outside China where conditions remain tough due to cost-cutting policies.

Abbott's Nutrition category, home to staples like Ensure and PediaSure, grew a modest 4% organically. Adult nutrition sales led the charge with a 5.4% rise, buoyed by international markets.

Management issued a slightly narrowed full-year earnings outlook, slicing the adjusted EPS range to $5.12-$5.18 from prior guidance, still in line with analyst predictions. Organic sales growth expectations remain steady as well.

Inside the club, Abbott's position is under review, especially since it accounts for less than 1% of the portfolio and the second lackluster quarter challenges the time investment required to stay on top of it. Comparatively, bigger positions like Nike (NYSE: NKE) offer more fruitful engagement.

The stock's modest dip didn't prompt new buys either, and the current move is to downgrade Abbott to a hold, with a trimmed price target now sitting at $140 a share from $145. In the clash between medical device stalwarts and competitors who are fighting through their own headwinds, Abbott's next steps will be watched closely - assuming it sticks around in portfolios at all.