GILD Gilead Sciences Inc

Abbott Laboratories (ABT) is all set to announce its first quarter 2011 results on April 20, 2011 before the opening bell. The Zacks Consensus Estimate for the first quarter of 2011 is $0.90, representing a year-over-year increase of 11.1%. Abbott Labs has surpassed earnings estimates consistently in the last four quarters with a trailing four-quarter average of 1.0%.

Fourth Quarter 2010 Recap

Abbott Laboratories reported fourth quarter earnings of $1.30 per share, a penny above the Zacks Consensus Estimate. Earnings increased 10.2% from the year-ago period. Higher revenues helped drive results. However, including one-time items, earnings declined 6.1% to $0.92 per share.

Fourth quarter revenues increased 13.4% to $9.97 billion, above the Zacks Consensus Estimate of $9.89 billion.

(Read our full coverage on the earnings report at Abbott Labs Tops 4Q Estimates.)

Agreement of Estimate Revisions

Estimate revisions for Abbott Labs have been scarce over the past month. Over the past thirty days, only three analysts covering Abbott Labs have revised their earnings estimates for the first quarter of 2011. While 2 of them have cut their earnings estimates, 1 has moved in the opposite direction. The annual estimates for 2011 too have not been revised by   the majority of analysts. Only 2 of the 22 analysts following Abbott Labs for 2011 have revised their estimates upward.

There are a number of reasons for the downward bias regarding Abbott Labs for the first quarter of 2011. Concerns like the impact of  the US health care reform, product recalls, foreign exchange headwinds and EU pricing austerity continue to hurt Abbott Labs. Moreover, several products in Abbott Labs’ portfolio like Omnicef and clarithromycin are facing declining sales due to increased generic competition.

Although sales of Abbott Labs’ lead drug Humira (anti-inflammatory) continue to be impressive; we are concerned about new competition in the market in the form of Johnson and Johnson’s (JNJ) Simponi and UCB Pharma’s (UCBJF) Cimzia. The newly invigorated competition could lead to a slowdown in Humira’s market share gains.

Meanwhile, Abbott’s Kaletra faces intense competition in the HIV market from players like Gilead Sciences (GILD), Bristol-Myers Squibb (BMY), and Johnson and Johnson. Abbott’s lipid franchise also faces stiff competition in the highly crowded fenofibrate market.

Moreover, Abbott Labs  faced a regulatory setback when the development of Certriad, co-developed with AstraZeneca (AZN), was scrapped following the receipt of a complete response letter. This was a major disappointment for Abbott Labs, which was looking to drive sales of its cardiovascular franchises by launching Certriad. Such setbacks will weigh heavily on the stock.

Magnitude of Estimate Revisions

Estimates for the first quarter of 2011 have gone down by only $0.01 in the last 30 days due to a lack of significant estimate revisions by the analysts following the stock. Estimates for 2010 too are static at $4.60 over a similar time period.

Neutral on Abbott Labs

We currently have a Neutral recommendation on Abbott Labs, which is supported by a Zacks #3 Rank (short-term “Hold” rating). Despite lingering challenges like the impact of the US healthcare reform, foreign exchange headwinds and EU pricing austerity, we believe Abbott Labs’ strong business segments, contributions from acquisitions and late-stage pipeline should help the company deliver strong earnings growth.

 
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