Goldman Is Downgrading Abbott Laboratories

• Abbott Laboratories ABT shares have appreciated 7.21 percent over the last month, from a share price of $40.91 on October 13.
• Goldman Sachs’ David H. Roman has downgraded the rating on the company from Buy to Neutral, while maintaining a price target of $48.
• Roman explained that the recent rebound in the share price has led to a more balanced risk-reward profile for the stock, while the downgrade was also based on a perception of “greater upside elsewhere.”

According to the Goldman Sachs report, the downgrade does not reflect “a negative call on Abbott’s business or emerging markets but rather a shift in our industry view to focus on stocks with more bottoms-up growth drivers rather than making a top-down call.”

Analyst David Roman elaborated that the fundamental view of Abbott Laboratories remains constructive, although at present the company needs capital allocation for the bull case to materialize.

“Fundamentally, we understand Abbott’s long-term strategy to increasingly orient its business mix to EM (emerging markets) and consumer verticals within healthcare, particularly in light of US/EU reimbursement pressures,” Roman stated.

However, Roman believes that the company is likely entering a period where it could see “growing pains,” with comps becoming tougher and decelerating top line growth, along with the increasing need to drive growth for the Device business.

“As the company manages this potential transition, we see less potential for relative outperformance absent a more significant capital allocation event,” Roman explained.

Going forward, Roma believes that the stock’s performance would become increasingly linked to capital deployment initiatives, “as the company continues to reshape its business mix and growth profile.”