Abbott Reduces Outlook for Pandemic-Related Diagnostics

We’re not surprised by narrow-moat Abbott’s ABT recalibration of its outlook for COVID-19 testing now that the pandemic has been receding in developed markets. After fine-tuning our already more tempered estimates for Abbott’s COVID-19 business in 2021 and incorporating our expectations for the U.S. corporate tax rate to rise to a probability-weighted 26%, we’re holding steady on our $97 fair value estimate, as the two factors weren’t enough to materially move our valuation.

We’d already seen a foreshadowing of softening demand for COVID-19 diagnostic tests as reference labs LabCorp LH and Quest Diagnostics DGX had indicated that SARS-CoV-2 testing volume peaked in mid-December and then steadily declined through to the end of the first quarter. Considering the penetration of COVID-19 vaccination in the United States and a falling caseload in the last couple of months, we anticipate further decreases in PCR testing through the rest of this year at the labs.

The big question is to what degree demand for COVID-19 PCR testing could shift to the point-of-care, rapid antigen tests that Abbott has supplied. The U.S. government made bulk purchases of those antigen tests last year, and the test recently became widely available over the counter. However, gains in vaccinating adults and now teens in the U.S. are taking place quickly, reducing the need for rapid antigen tests. Abbott now expects $4 billion-$4.5 billion in COVID-19 test sales in 2021 (down from the $6.5 billion it expected earlier this year), which is closer to our $4.5 billion estimate. We continue to project the diagnostics segment to decline 7% in 2022, driven by falling demand for COVID-19 tests.

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