This stock could be a surprise growth choice

When we think of growth stocks, we often think of young companies that are not necessarily profitable. They may generate double or triple digit income gains, but they reinvest all of that back into their businesses. What if I told you that there is an established healthcare business out there – with income and double-digit profit growth?

The safety of a player who has been around for a long time and the possibility of big income gains – and increased stock prices – mean a good deal. This particular stock climbed 26% last year and recently posted bumper quarterly and annual earnings. I’m talking about the health giant Abbott Laboratories (NYSE: ABT). Let’s take a closer look at this surprising growth choice.

A portfolio combination that works

Diversification has helped Abbott build a product portfolio conducive to growth. The company has four activities: diagnostics, medical devices, nutrition and pharmaceuticals. Abbott’s annual net income has grown over the past three years. And annual income has increased over the past eight years. Usually, the medical device industry is the most important area. For example, in 2019, this business represented 38% of Abbott’s annual revenue.

Last year, however, the coronavirus pandemic led to fewer procedures in healthcare facilities. Hospitals have focused their resources on patients with COVID-19. And that weighed on Abbott’s medical device sales. But at the start of the crisis, Abbott was already thinking about growth. The company started working on coronavirus diagnostics and has since grown into a leader in the field.

The United States Food and Drug Administration (FDA) has granted Emergency Use Clearance (EUA) to eight of Abbott’s COVID-19 tests. This includes the fast and portable BinaxNOW in the United States. Internationally, the authorities have approved the similar Panbio diagnosis. Both generate significant revenues for Abbott.

In the fourth quarter ending December 31, the ID NOW rapid test platforms BinaxNOW, Panbio and Abbott generated $ 1.9 billion in sales. In total, Abbott’s coronavirus diagnoses generated $ 2.4 billion. Abbott has delivered more than 400 million coronavirus tests since the start of the pandemic – and 300 million of them were shipped in the fourth quarter. BinaxNOW and Panbio launched at the end of the summer, so we’re just starting to see how their sales translate into profits.

A wave of tests

This testing surge helped Abbott’s diagnostics business sales soar 111% in the fourth quarter and 40% for the year. All figures are from year to year. Total fourth quarter sales – including all business segments – increased more than 28% to $ 10.7 billion. And earnings per share (EPS) for the quarter jumped more than 52% to $ 1.45. What’s even better is the strength of Abbott’s forecast for the year ahead. The company forecasts EPS growth of more than 35% for 2021.

So how will all of this growth continue? When it comes to sales of coronavirus diagnostics, there is likely a lot more to come. The United States has ordered 150 million BinaxNOW tests – and Abbott completed that order last month. It is now working on a second order for 30 million more tests by March. Newly inaugurated President Joe Biden has made coronavirus testing one of his main goals. It’s not hard to imagine the new administration’s renewed emphasis on testing, which will lead to more orders in the future.

Even if the pandemic abates, it is clear that the need for testing will persist for some time. Testing is the main way to monitor the presence of the virus around the world. And while Abbott’s coronavirus testing must have made up for declining medical device sales this year, he likely won’t have to do it again. Hospitals resume other procedures and sales of medical devices resume. For example, Abbott’s medical device sales fell 21% in the quarter ended June 30. They rose 1.7% in the fourth quarter.

It is very likely that this year and in the future, Abbott will benefit from sales of coronavirus diagnostics and sales of medical devices. So the company’s double-digit EPS target for the year seems within reach. And I think that means more wins are on the horizon for actions of that health care business, too.