Abbott's Q4 Earnings Meet Estimates, Highlighting Steady Growth Amid Unresolved Risks

What happened

Abbott Laboratories reported Q4 2025 earnings of $1.50 per share, matching Zacks Consensus Estimates and representing an 11.9% increase from $1.34 a year ago, driven by continued strength in medical devices, particularly the Libre CGM franchise. This performance aligns with the company's guidance for high-single-digit organic growth, as noted in the DeepValue report, which emphasizes devices as the primary growth engine. However, the earnings report does not address the significant headwinds from diagnostics, including over $1 billion in revenue drag from China VBP and HIV funding cuts that have pressured margins. Persistent legal risks, such as NEC infant formula litigation with nearly 800 federal cases pending and Libre quality issues linked to injuries, remain material overhangs that could impact future cash flows. Despite the in-line results, Abbott's stock trades at a premium valuation of ~24x 2025 adjusted EPS, offering limited upside without resolution of these ongoing challenges.

Implication

The in-line earnings reinforce Abbott's ability to execute on its device-led growth strategy, supporting the base-case scenario of $135 implied value, but do not mitigate the diagnostics headwinds or legal exposures highlighted in the DeepValue report. Investors must recognize that the stock's current valuation embeds expectations for sustained high-single-digit EPS growth, which remains vulnerable to decelerating Libre expansion and potential regulatory actions. Legal risks, including NEC litigation with a $495 million verdict and IRS disputes exceeding $1 billion, could trigger significant cash outflows, compressing earnings and limiting capital return flexibility. Monitoring catalysts like the dual-analyte Libre launch and diagnostics stabilization in 2026 is crucial, as positive developments could drive upside, while adverse outcomes might validate the bear case of $105. Given the 'WAIT' rating and attractive entry at $115, investors should avoid adding exposure at current levels and consider deploying capital only on pullbacks or after clearer risk resolution.

Thesis delta

The Q4 earnings report does not shift the investment thesis; it reaffirms Abbott's near-term earnings resilience but fails to address the core risks of diagnostics normalization and legal overhangs that the DeepValue report identifies as thesis breakers. Investors should maintain the 'WAIT' stance, as the earnings match provides no new evidence to alter the probability-weighted scenarios or justify a premium multiple above the attractive entry point of $115.