Abbott Laboratories (ABT)

Healthcare product and device company Abbott Laboratories (NYSE:ABT) met Wall Street’s revenue expectations in Q3 CY2025, with sales up 6.9% year on year to $11.37 billion. Its non-GAAP profit of $1.30 per share was in line with analysts’ consensus estimates.

Company Overview

With roots dating back to 1888 when founder Dr. Wallace Abbott began producing precise, dosage-form medications, Abbott Laboratories (NYSE:ABT) develops and sells a diverse range of healthcare products including medical devices, diagnostics, nutrition products, and branded generic pharmaceuticals.

The medical devices industry operates a business model that balances steady demand with significant investments in innovation and regulatory compliance. The industry benefits from recurring revenue streams tied to consumables, maintenance services, and incremental upgrades to the latest technologies. However, the capital-intensive nature of product development, coupled with lengthy regulatory pathways and the need for clinical validation, can weigh on profitability and timelines. In addition, there are constant pricing pressures from healthcare systems and insurers maximizing cost efficiency. Over the next several years, one tailwind is demographic–aging populations means rising chronic disease rates that drive greater demand for medical interventions and monitoring solutions. Advances in digital health, such as remote patient monitoring and smart devices, are also expected to unlock new demand by shortening upgrade cycles. On the other hand, the industry faces headwinds from pricing and reimbursement pressures as healthcare providers increasingly adopt value-based care models. Additionally, the integration of cybersecurity for connected devices adds further risk and complexity for device manufacturers.

Abbott Laboratories competes with diversified healthcare companies like Johnson & Johnson (NYSE:JNJ) and Medtronic (NYSE:MDT) in medical devices, Roche (OTC:RHHBY) and Danaher (NYSE:DHR) in diagnostics, Nestlé (OTC:NSRGY) and Mead Johnson (owned by Reckitt Benckiser, OTC:RBGLY) in nutrition, and various pharmaceutical companies including Pfizer (NYSE:PFE) and Novartis (NYSE:NVS) in its established pharmaceuticals business.

Larger companies benefit from economies of scale, where fixed costs like infrastructure, technology, and administration are spread over a higher volume of goods or services, reducing the cost per unit. Scale can also lead to bargaining power with suppliers, greater brand recognition, and more investment firepower. A virtuous cycle can ensue if a scaled company plays its cards right.

With $43.84 billion in revenue over the past 12 months, Abbott Laboratories boasts impressive economies of scale. It may not be as large as heavyweights such as UnitedHealth Group and The Cigna Group from a topline perspective, but its heft is still an important advantage in a healthcare industry that is heavily regulated, complex, and resource-intensive.

A company’s long-term sales performance can indicate its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Unfortunately, Abbott Laboratories’s 6.4% annualized revenue growth over the last five years was mediocre. This wasn’t a great result compared to the rest of the healthcare sector, but there are still things to like about Abbott Laboratories.

Long-term growth is the most important, but within healthcare, a half-decade historical view may miss new innovations or demand cycles. Abbott Laboratories’s recent performance shows its demand has slowed as its annualized revenue growth of 4.7% over the last two years was below its five-year trend.

Abbott Laboratories also reports organic revenue, which strips out one-time events like acquisitions and currency fluctuations that don’t accurately reflect its fundamentals. Over the last two years, Abbott Laboratories’s organic revenue averaged 6.2% year-on-year growth. Because this number aligns with its two-year revenue growth, we can see the company’s core operations (not acquisitions and divestitures) drove most of its results.

This quarter, Abbott Laboratories grew its revenue by 6.9% year on year, and its $11.37 billion of revenue was in line with Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 7.8% over the next 12 months, an improvement versus the last two years. This projection is above average for the sector and suggests its newer products and services will spur better top-line performance.

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Abbott Laboratories has managed its cost base well over the last five years. It demonstrated solid profitability for a healthcare business, producing an average operating margin of 18%.

Analyzing the trend in its profitability, Abbott Laboratories’s operating margin decreased by 2.4 percentage points over the last five years, but it rose by 2.6 percentage points on a two-year basis. We like Abbott Laboratories and hope it can right the ship.

This quarter, Abbott Laboratories generated an operating margin profit margin of 18.1%, in line with the same quarter last year. This indicates the company’s overall cost structure has been relatively stable.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Abbott Laboratories’s EPS grew at a remarkable 9.6% compounded annual growth rate over the last five years, higher than its 6.4% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

We can take a deeper look into Abbott Laboratories’s earnings quality to better understand the drivers of its performance. A five-year view shows that Abbott Laboratories has repurchased its stock, shrinking its share count by 2.2%. This tells us its EPS outperformed its revenue not because of increased operational efficiency but financial engineering, as buybacks boost per share earnings.

In Q3, Abbott Laboratories reported adjusted EPS of $1.30, up from $1.21 in the same quarter last year. This print was close to analysts’ estimates. Over the next 12 months, Wall Street expects Abbott Laboratories’s full-year EPS of $4.99 to grow 11.3%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Abbott Laboratories has shown robust cash profitability, giving it an edge over its competitors and the ability to reinvest or return capital to investors. The company’s free cash flow margin averaged 16.6% over the last five years, quite impressive for a healthcare business.

Taking a step back, we can see that Abbott Laboratories’s margin dropped by 8.3 percentage points during that time. If its declines continue, it could signal increasing investment needs and capital intensity.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Abbott Laboratories’s five-year average ROIC was 14%, higher than most healthcare businesses. This illustrates its management team’s ability to invest in profitable growth opportunities and generate value for shareholders.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Abbott Laboratories’s ROIC has unfortunately decreased. Only time will tell if its new bets can bear fruit and potentially reverse the trend.

Abbott Laboratories reported $7.72 billion of cash and $13.44 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $11.4 billion of EBITDA over the last 12 months, we view Abbott Laboratories’s 0.5× net-debt-to-EBITDA ratio as safe. We also see its $188 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We struggled to find many resounding positives in these results. Revenue and EPS were in line, and full-year guidance was maintained. Overall, this quarter had few surprises, but it could also have been better. The stock traded down 3.3% to $128.87 immediately after reporting.

Updated: December 3, 2025 at 10:53 PM EST

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Abbott Laboratories.

Abbott Laboratories is a fine business. Although its revenue growth was mediocre over the last five years, its growth over the next 12 months is expected to be higher. And while Abbott Laboratories’s diminishing returns show management's recent bets still have yet to bear fruit, its scale makes it a trusted partner with negotiating leverage. On top of that, its strong operating margins show it’s a well-run business.

Abbott Laboratories’s P/E ratio based on the next 12 months is 22.8x. When scanning the healthcare space, Abbott Laboratories trades at a fair valuation. If you trust the business and its direction, this is an ideal time to buy.

Wall Street analysts have a consensus one-year price target of $144.43 on the company (compared to the current share price of $125.22), implying they see 15.3% upside in buying Abbott Laboratories in the short term.