Shares of Abbott Laboratories fell 3% on Wednesday after the diversified healthcare company delivered another less-than-stellar quarter. Revenue in the third quarter ended Sept. 30 rose 6.9% to $11.37 billion, missing market data provider LSEG’s consensus estimate of $11.4 billion. According to FactSet, organic sales, excluding Covid test results, rose 7.5%, beating the 5.9% estimate. Adjusted earnings per share (EPS) rose 7.4% to $1.30, in line with expectations, LSEG data showed. The bottom line is that Abbott’s Q3 numbers weren’t the best, as sales in three of its four main business segments fell short of expectations. It was the second suboptimal quarter in a row. With shares less than 10% off their all-time highs, we’re considering whether it’s time to call the stock market and exit Abbott to free up portfolio space for a new name. During the club’s morning meeting on Wednesday, Jim Cramer expressed concern about Abbott and fellow club member Danaher’s exposure to China’s sluggish healthcare sector. We are considering whether it makes sense to hold both stocks as we would benefit from an improvement in China through our larger position in Danaher. ABT YTD Berg Abbott Laboratories YTD Additionally, Danaher, which has struggled greatly this year, is showing signs of improvement. While Danaher is more than 25% off its 52-week highs and nearly 30% off its all-time highs in 2021, it could well represent the better risk-reward ratio. We are continuing to push this forward internally and will of course inform members about the further development of our way of thinking. As for the ongoing legal battle over Abbott’s special formula for premature babies, management hasn’t said much other than that it continues to stand behind its product and the lawsuit is ongoing. The formula in question is given to premature babies in neonatal intensive care units. This is often one of the only ways to feed these babies. The lawsuits allege that Abbott failed to properly warn nurses about the risks of necrotizing enterocolitis, a serious intestinal disease. Abbott has repeatedly stated that there is no scientific evidence that the product causes or contributes to NEC. Why We Own It Abbott is a high-quality medical technology company. Since we’ve owned it, the stock has had to contend with several overhangs, such as: B. Litigation related to their special infant formula; falling Covid test sales; and concerns about the impact of the introduction of the GLP-1 drug on the company’s continuous glucose monitor business. It is noteworthy that the share price has been on the upswing since the beginning of the year. Competitors: Dexcom, Boston Scientific and Edwards Lifesciences. Last Purchased: May 29, 2024. Initiated: January 29, 2024. Because we see no reason to buy additional Abbott shares given Wednesday’s decline and because the position is too small to warrant intensive monitoring, we are downgrading it to our rating of 3, meaning we will consider selling the stock into strength. We are also lowering our price target on Abbott from $145 to $140 per share. There is only so much time in the day – so as portfolio managers we need to consider the value of our time. When it comes to a position with a weight of less than 1% and a second disappointment in a row, we need to consider whether the time we spent doing homework on Abbott could be better spent monitoring, for example, Nike, where we already have a position with a weight of more than 2% and which we want to continue to grow as opportunities arise. Guidance Abbott management has tightened its full-year EPS outlook around the midpoint of $5.15 and now forecasts a range of $5.12 to $5.18 versus the previous range of $5.10 to $5.20. This was in line with the consensus estimate produced by LSEG. The team continues to expect full-year organic revenue growth of 7.5% to 8%, excluding the company’s Covid testing business – or 6% to 7% when including Covid testing. The full-year EPS guide, less the three quarters already reported, implies that management is targeting adjusted EPS in the range of $1.47 to $1.53 for the current fourth quarter. The midpoint of $1.50 was a penny above what analysts had expected, according to LSEG. Segment Comment Medical device sales were the only standout in the third quarter, increasing organically by 12.5% compared to the same period last year. Key to the result was double-digit growth in diabetes care, electrophysiology, rhythm management, heart failure and structural heart. In particular, diabetes care sales benefited from 17.2% organic growth in continuous glucose monitors to $2 billion. Sales in the established pharmaceutical sector fell a hair short of expectations, but increased organically by 7.1% compared to the same period last year. Emerging markets, which offer the most attractive long-term growth opportunities for Abbott’s branded generics, again exceeded $1 billion in sales, growing 11.1% organically year-over-year. Abbott CEO Robert Ford highlighted strengths in gastroenterology, cardiovascular and pain management on the call, citing “favorable demographic trends and growing demand for high-quality, affordable medicines.” Diagnostics sales were a drag, falling short of estimates and declining 7.8% organically, reflecting a nearly 28% organic decline in rapid diagnostics. Excluding the impact of Covid testing, quarterly sales rose just 0.4%. Covid testing revenue was just $69 million in the quarter, down from $265 million in the same period last year. Global core laboratory diagnostics sales grew 2.2% organically year-over-year, and excluding China, core laboratory diagnostics sales grew 7% organically, “with markets such as the U.S. experiencing an acceleration in growth in the third quarter compared to growth in the first half of the year,” Ford noted. China remains strong due to challenging market conditions, including volume-based Procurement programs to reduce local health care costs, a headwind. In the point-of-care diagnostics segment, which grew nearly 8% organically, management noted increasing adoption of two novel tests: the point-of-care concussion test and the high-sensitivity troponin test for earlier and more accurate detection of heart attacks. Sales of nutritional products — home to brands like Indeed protein powder and PediaSure kids’ drinks — also fell short of expectations. It managed to grow organically by 4% year-on-year. Adult sales drove growth, increasing 5.4% organically, led by diabetes shakes Ensure and Glucerna. In the conference call, Ford said the adult segment led international markets with 10% growth. (Jim Cramer’s Charitable Trust is called ABT, NKE. A full list of stocks can be found here.) As a subscriber to CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable foundation’s portfolio. If Jim discussed a stock on CNBC television, he waits 72 hours after the trade alert is issued before executing the trade. THE INVESTING CLUB INFORMATION SET FORTH ABOVE IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY, ALONG WITH OUR DISCLAIMER. THERE ARE NO fiduciary duty or duty IN RECEIVING YOUR INFORMATION PROVIDED IN CONNECTION WITH THE INVESTMENT CLUB. NO SPECIFIC RESULTS OR PROFITS ARE GUARANTEED.