Abbott's Q4 Sales Miss Highlights Persistent Diagnostics Drag, EPS Resilience Insufficient for Re-Rating

What happened

Abbott Laboratories reported Q4 2025 sales of $11.46 billion, a 4.4% year-over-year increase that fell short of analyst estimates by about 3%, underscoring ongoing top-line pressures. Adjusted EPS of $1.50 met expectations, with annual EPS growing 10% to $5.15, indicating cost management and device-led profitability amid revenue challenges. This sales miss aligns with the DeepValue report's identification of diagnostics headwinds, such as China volume-based procurement and HIV funding cuts, which are creating a multi-billion-dollar drag. The stock's decline reflects investor sensitivity to deviations from Abbott's growth script, compounded by legal overhangs like NEC litigation and IRS disputes. Overall, the results reinforce the 'WAIT' rating, emphasizing that diagnostics normalization and risk resolution are prerequisites for meaningful upside.

Implication

The sales shortfall confirms the DeepValue report's warnings about diagnostics being a structural headwind, likely capping near-term growth and re-rating potential. EPS meeting expectations shows temporary cost offsets, but reliance on devices for growth masks underlying diagnostics weakness that could persist. Valuation at ~24x 2025 adjusted EPS offers limited upside without resolution of China VBP impacts, NEC litigation, or Libre quality concerns. Monitoring should focus on upcoming diagnostics performance and legal outcomes, with adverse developments potentially triggering further downside. Therefore, capital deployment is better timed on weakness below $115 or after evidence that diagnostics have stabilized and litigation risks are bounded.

Thesis delta

The thesis remains unchanged; the Q4 results directly corroborate the diagnostics drag and legal overhangs highlighted in the DeepValue report, reinforcing the 'WAIT' rating. However, it underscores the urgency of Abbott addressing these issues to sustain its premium valuation, with no shift in the attractive entry point of $115 or the need for clarity on key risks before investing.