Is Abbott Laboratories Stock a Buy?

If a company's history and track record were good enough reasons to buy its shares, it'd be easy to make a case for investing in Abbott Laboratories (NYSE: ABT). Abbott is a longtime leader in the healthcare sector, and has generally delivered excellent returns to long-term shareholders.

However, that's no guarantee of future returns. And detractors will point out that Abbott has encountered some headwinds lately, especially on the legal and regulatory fronts. Is the company still worth a look if you're a long-term investor?

The case for Abbott Laboratories

Abbott Laboratories is one of the world's leading medical device makers. It routinely develops and markets newer products, and its portfolio boasts dozens of patented devices that generate consistent sales. However, Abbott also has its hands in three other segments: nutrition (where it is also one of the leaders), established pharmaceuticals, and diagnostics. Diversification has its perks; it allows the company not to be too reliant on a single business unit.

When its nutrition segment encountered some issues -- it had to recall some of its baby formula products a couple of years ago due to potential infection -- the rest of its business picked up the slack. When demand for some of its medical devices fell off a cliff because of the pandemic, practically overnight, the company relied on its diagnostic business to keep things afloat.

So despite these disruptions, Abbott's financial results have been somewhat consistent in recent years:

ABT Revenue (Quarterly) data by YCharts.

Abbott's diversified business, innovative abilities, and deep expertise in the industry should allow it to perform well over the long run, especially as it has lucrative opportunities ahead. Among them is its diabetes care segment, spearheaded by a continuous glucose monitoring (CGM) franchise, the FreeStyle Libre. Over the past few years, this product line has been Abbott's most important growth driver.

The company is doubling down. It recently launched an over-the-counter CGM option for diabetes patients in the U.S. called the Libre Rio. For consumers without diabetes, it now also has an over-the-counter CGM option called the Lingo.

Its CGM franchise has a vast runway for growth. Earlier this year, the company estimated that of the half-billion adults worldwide it believes have diabetes, only 1% have access to CGM technology. Abbott is a leader in the field, and currently serves only about 6 million patients. That's a massive long-term opportunity.

Abbott Laboratories is also an excellent dividend stock, currently on a streak of 52 consecutive payout increases. If you opt to reinvest the dividend -- currently yielding 1.8% -- you'll see returns boosted over the long term.

Some potential risks to consider

Every company faces headwinds. Let's consider two that Abbott has encountered.

First, as mentioned earlier, it's faced legal and regulatory issues. Abbott's baby formula problems led to lawsuits. In July, the company had to dish out $495 million after a court ruled that its formula caused a premature baby to develop a dangerous bowel disease. There are many more similar lawsuits in the pipeline.

Abbott has also had to recall some FreeStyle Libre sensors due to possibly inaccurate glucose readings, though this recall was for a small number of devices. These legal and regulatory problems have yet to cause serious, long-term harm to the company. But things could get worse for it as time passes.

Second, Abbott Labs faces competition from DexCom in the CGM market. The two are the leaders in the field, and have been battling for market share for years. Thankfully, Abbott's CGM unit has thrived despite the competition from DexCom, but that's something to keep in mind.

What's the verdict?

In my view, the bull case for Abbott Laboratories is stronger than the bear thesis. The company is no stranger to facing lawsuits, which are typical for corporations that have been around as long as it has. It's unlikely that this new wave of legal problems will sink Abbott's business.

And in the meantime, the company's long-term opportunities, innovative abilities, and reliable dividend program all make it attractive. Abbott Laboratories is still worth investing in.

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Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Abbott Laboratories. The Motley Fool recommends DexCom. The Motley Fool has a disclosure policy.