Executive Summary / Key Takeaways

• Diversified Growth & Profitability: Abbott Laboratories ($ABT) demonstrates robust financial health, delivering high single-digit sales growth and double-digit adjusted EPS growth in the first half of 2025, alongside significant gross and operating margin expansion. This performance underscores the strength and resilience of its diversified business model across Medical Devices, Diagnostics, Nutritional Products, and Established Pharmaceutical Products.
• Innovation as a Core Moat: A rich and continuously advancing product pipeline, particularly in Medical Devices, is a primary growth driver. Key technological differentiators like the FreeStyle Libre CGM system (including the upcoming dual analyte sensor and Lingo), Volt PFA, and AVEIR leadless pacemakers are expanding market opportunities and reinforcing competitive advantages.
• Strategic Resilience Amidst Headwinds: Despite facing transient challenges such as declining COVID-19 testing sales, volume-based procurement (VBP) programs in China's diagnostics market, and new tariff policies, Abbott has reaffirmed its full-year 2025 guidance, leveraging its global manufacturing network and operational discipline to mitigate impacts.
• Strong Outlook & Shareholder Returns: Management projects continued high single-digit organic sales growth and double-digit adjusted EPS growth for 2025, with momentum expected to accelerate into 2026 as current headwinds subside and new product launches gain traction. The company maintains a balanced capital allocation strategy, including a growing dividend and share repurchases.
• Competitive Leadership: Abbott maintains market-leading positions in several key areas, such as adult nutrition and continuous glucose monitoring, and is strategically gaining share in high-growth medical device segments like structural heart and electrophysiology, supported by its integrated portfolio and global scale.

A Legacy of Innovation and Diversification

Abbott Laboratories, founded in 1888, has cultivated a century-long legacy of innovation, evolving into a global healthcare powerhouse. Its diversified business model, spanning Established Pharmaceutical Products (EPD), Diagnostic Products, Nutritional Products, and Medical Devices, has proven to be a cornerstone of its resilience, enabling consistent performance amidst global economic shifts and geopolitical complexities. This strategic breadth allows Abbott to capitalize on diverse healthcare trends, from chronic disease management to consumer wellness, and to mitigate risks inherent in any single market.

The company's strategic framework emphasizes aligning manufacturing close to customers and building redundancy across its approximately 90 global sites. This approach, while not initially designed for tariffs, provides substantial maneuverability in managing external pressures. Abbott's commitment to innovation is deeply embedded, with a robust R&D pipeline that continuously delivers new products and enhances existing technologies, a critical factor in its competitive positioning.

Technological Edge: Fueling Market Leadership

Abbott's competitive moat is significantly fortified by its differentiated technology and continuous innovation across its segments. This technological leadership translates directly into tangible benefits for patients and strong financial performance for the company.

In Diabetes Care, the FreeStyle Libre continuous glucose monitoring (CGM) system stands out. It generated $3.80 billion in sales in the first half of 2025, growing 19.1% organically. The U.S. market share for Libre has increased by over 10 percentage points in the last three years. This success is driven by its accessibility and accuracy, expanding into underpenetrated segments like basal insulin users and non-insulin users. Abbott is pioneering a dual analyte sensor (glucose and ketone), which is anticipated to be a "real next level, significant change" for intensive insulin users, helping prevent diabetic ketoacidosis and potentially enabling broader prescription of SGLT2 inhibitors for Type 1 diabetics. The company's Lingo wearable sensor, launched in the U.S. in September 2024, targets non-diabetic consumers for health and wellness, showing "very nice trends" and high reorder rates, indicating a successful expansion into the biowearables market. Furthermore, collaborations with major insulin pump companies, including Epic for electronic health record integration, enhance Libre's utility and market reach.

In Electrophysiology (EP), Abbott's Volt Pulsed Field Ablation (PFA) System, which received CE Mark in March 2025, represents a significant technological advancement for atrial fibrillation treatment. Its unique balloon design is "perfect for PVI" (pulmonary vein isolation), optimizing the procedure and providing "best-in-class parasixomal data." The system offers real-time feedback on tissue contact, leading to fewer applications and less muscle contraction, potentially enabling procedures under sedation rather than general anesthesia. This innovation positions Abbott strongly against competitors like Medtronic (MDT), where Abbott's integrated mapping and ablation solutions offer a compelling value proposition. The company is also developing the TactiFlex DUO catheter, combining PFA and radiofrequency energy, and launched the Adviser HD Grid X mapping catheter to enhance cardiac mapping.

Rhythm Management is being transformed by AVEIR, Abbott's innovative leadless pacemaker. This technology is fundamentally changing the growth trajectory of the CRM business, driving adoption in both single and dual chamber pacing. The company is developing a next-generation AVEIR with a 25% longer battery life and is targeting a pivotal trial in 2026 for a leadless conduction system pacing product, which has received Breakthrough Designation from the FDA. This strategic focus on leadless technology allows Abbott to significantly outperform the broader CRM market.

In Structural Heart, Abbott's diversified portfolio includes the recently FDA-approved Tendyne transcatheter mitral valve replacement (TMVR) system for severe mitral annular calcification (MAC). The company is also developing a new transfemoral mitral valve replacement product, which received Breakthrough Designation, with a pivotal trial planned for next year. This complements its market-leading MitraClip, for which a next-generation version with improved deployment and deliverability has been launched. TriClip, for tricuscard regurgitation, has seen strong adoption, with two-year TRILUMINATE Pivotal trial data showing a statistically significant reduction in heart failure-related hospitalizations.

Finally, in Diagnostics, Abbott is investing $500 million in new manufacturing and R&D in the U.S. to expand its transfusion diagnostic business. The new Alinity N system aims to enter the molecular nucleic acid testing segment, an estimated $1 billion market opportunity, further diversifying its diagnostic offerings. The company is also initiating a U.S. pivotal trial for its Coronary Intravascular Lithotripsy (IVL) System, a billion-dollar market opportunity, to treat severe calcification in coronary arteries.

Financial Performance and Operational Strength

Abbott's financial performance in the first half of 2025 reflects the strength of its diversified portfolio and operational discipline. Total net sales for the second quarter of 2025 reached $11.14 billion, marking a 7.4% increase year-over-year. Organic sales growth, excluding the impact of foreign exchange, was 6.9%, or 7.5% when excluding COVID-19 testing-related sales. For the first six months of 2025, total net sales were $21.50 billion, up 5.7% year-over-year, with organic sales growth of 6.8% (or 8.3% excluding COVID-19 testing sales).

The Medical Devices segment was a standout performer, with organic sales growth of 12.2% in Q2 2025 and 12.4% in the first half of 2025, driven by double-digit growth across Diabetes Care, Heart Failure, Structural Heart, and Electrophysiology. Established Pharmaceutical Products also showed strong momentum, growing 7.7% organically in Q2 2025, with Key Emerging Markets surpassing $1 billion in quarterly sales for the first time. Nutritional Products delivered 3.4% organic growth in Q2 2025, propelled by strong adult nutrition sales.

Profitability metrics demonstrate significant improvement. The adjusted gross margin reached 57.0% in Q2 2025, a 100 basis point increase from the prior year, and 57.1% for Q1 2025, a 140 basis point increase. This expansion is attributed to ongoing gross margin improvement initiatives and favorable product mix. Adjusted operating margin also saw a healthy increase of 100-130 basis points year-over-year. Net earnings for Q2 2025 were $1.78 billion, up from $1.30 billion in Q2 2024, contributing to diluted EPS of $1.01. For the first six months, net earnings were $3.10 billion, up from $2.53 billion in the prior year period, with diluted EPS of $1.77.

Abbott's liquidity remains robust. Cash and cash equivalents stood at $6.95 billion as of June 30, 2025. Net cash from operating activities for the first half of 2025 totaled $3.46 billion, a substantial increase of $479 million from the prior year, primarily due to higher segment operating earnings. The company maintains an investment-grade credit rating (AA- by S&P, Aa3 by Moody's) and actively manages its debt, having repaid $1.0 billion of notes in March 2025. Shareholder returns are a priority, with a quarterly dividend of $0.59 per share declared in Q1 and Q2 2025, representing a 7.3% increase year-over-year, and a new $7.0 billion share repurchase authorization in October 2024.

Competitive Landscape and Strategic Positioning

Abbott operates in highly competitive healthcare markets, facing a diverse set of rivals across its segments. Its diversified business model provides a significant competitive advantage, allowing it to leverage scale and cross-segment synergies.

In Medical Devices, Abbott competes with industry giants like Medtronic and Johnson & Johnson (JNJ). Abbott's strategy focuses on comprehensive patient monitoring and integrated solutions, particularly in diabetes care and structural heart. Its FreeStyle Libre CGM system holds approximately 70% of the global market share, a testament to its leadership in technology, scale, and cost. While Medtronic ($MDT) may have an edge in innovation speed for certain device-specific advancements, Abbott's integrated device-diagnostic synergies, such as Libre's integration with Epic's EHR system and insulin pumps, offer a unique value proposition. In structural heart, Abbott is strategically gaining share in TAVR with Navitor, which has doubled sales in the past two years, and is capitalizing on a competitor's market exit internationally. The company is also doubling its U.S. TAVR commercial team by year-end 2025 to expand its presence.

The Diagnostic Products segment faces competition from companies like Becton, Dickinson and Company (BDX). While BDX might excel in instrument durability, Abbott's diagnostic products, particularly its rapid testing solutions and upcoming Alinity N system for molecular nucleic acid testing, offer superior performance in rapid testing scenarios and expand its reach into new, high-growth areas. However, the segment has faced significant headwinds, including a projected $700 million impact from declining COVID-19 testing sales and volume-based procurement (VBP) programs in China. The China VBP programs have led to price hits without immediate volume offsets, a dynamic different from past VBP experiences. Despite this, Abbott's Core Lab Diagnostics grew 8% outside of China in Q2 2025, demonstrating strong underlying demand and the effectiveness of its Alinity platform deployment.

In Established Pharmaceutical Products, Abbott competes with pharmaceutical companies like Pfizer (PFE) in emerging markets. While Pfizer ($PFE) may lead in vaccine innovation, Abbott differentiates by offering a broad portfolio of branded generic medicines tailored to local conditions, leveraging its extensive existing infrastructure in these markets. This focus on key emerging markets, driven by favorable demographics, has enabled consistent high single-digit growth for the segment. Abbott's strategic push into biosimilars, with 15 products projected to launch over the next three years, further strengthens its competitive stance by bringing cutting-edge medicines to underserved populations.

Overall, Abbott's competitive standing is reinforced by its strong global brand, proprietary technologies, and diversified distribution channels. Its operational discipline, particularly in managing costs and optimizing its manufacturing network, allows it to maintain healthy margins and absorb external pressures like tariffs. While precise, directly comparable market share figures for all niche competitors are not publicly detailed, Abbott's consistent performance and strategic investments indicate a strong position relative to its peers.

Outlook, Guidance, and Growth Catalysts

Abbott's management has reaffirmed its full-year 2025 guidance, projecting organic sales growth (excluding COVID-19 testing sales) to be in the range of 7.5% to 8.0% and adjusted diluted earnings per share (EPS) to be between $5.10 and $5.20. This guidance reflects a commitment to high single-digit sales growth and double-digit EPS growth, a formula management views as a return to its pre-pandemic identity. For the third quarter of 2025, adjusted EPS is forecast to be in the range of $1.28 to $1.32.

The company anticipates a full-year 2025 adjusted gross margin profile of approximately 57% of sales, an improvement of about 80 basis points over 2024. The adjusted operating margin is forecast to be in the range of 23.5% to 24% of sales, reflecting a 150 basis point improvement at the midpoint, driven by continued gross margin expansion and operating leverage. The adjusted tax rate is expected to be between 16% and 17%, an increase due to the adoption of the Pillar 2 tax framework.

Management's confidence in this outlook is rooted in several key assumptions and growth catalysts. The impact of declining COVID-19 testing sales, while still a headwind in Diagnostics (projected at around $700 million or 750 basis points for full-year 2025), is diminishing and expected to be fully lapped by next year. The anticipated market volume recovery in China's Core Lab Diagnostics, initially expected in Q2 2025, has been pushed to Q4 2025, but this is viewed as a transient issue.

Looking into 2026, management expresses strong confidence in sustaining high single-digit sales growth and double-digit EPS growth. This acceleration is expected as current headwinds subside and a robust pipeline of new products gains momentum. Recently launched products are projected to contribute approximately $1 billion in revenue in 2025, double the contribution in 2023, with similar expectations for 2026. Key upcoming catalysts include the U.S. approval of the Volt PFA system (targeted for early 2026), the dual analyte Libre sensor, the rollout of biosimilars starting in 2026, and the initiation of pivotal trials for new structural heart and CRM technologies.

Risks and Challenges

Despite a strong outlook, Abbott faces several pertinent risks. The ongoing infant formula litigation related to necrotizing enterocolitis (NEC) remains a concern. While Abbott maintains the safety and medical necessity of its products, and has seen favorable rulings in some instances (e.g., summary judgment in a federal MDL bellwether case), a $495 million jury award in a Missouri state case, currently on appeal, highlights the potential for material losses. Management has stated that if the regulatory process and science are disregarded, it would be difficult for the company to continue offering these products in the U.S.

New tariff policies are another challenge, with an estimated impact of a few hundred million dollars in 2025, primarily affecting Q3 onwards. Abbott is actively implementing mitigation strategies, leveraging its global manufacturing network and financial levers (FX, interest rates, tax) to absorb this impact sustainably.

Furthermore, IRS tax disputes for federal tax years 2017-2020, totaling over $1 billion, related to income reallocation adjustments, present a financial risk. Abbott is vigorously contesting these claims. The adoption of the OECD Pillar 2 tax framework is expected to add an estimated $200 million in expense, with two-thirds paid to overseas countries, impacting profitability.

Conclusion

Abbott Laboratories stands as a compelling investment opportunity, rooted in its robust and diversified business model. The company's century-plus history of innovation, coupled with its strategic focus on high-growth healthcare markets and a relentless pursuit of technological differentiation, underpins its ability to consistently deliver top-tier financial results. Despite facing transient headwinds in its Diagnostics segment and the broader macroeconomic challenges of tariffs and litigation, Abbott has demonstrated remarkable resilience and operational agility.

The core investment thesis for Abbott is clear: a diversified portfolio of market-leading products, driven by a rich pipeline of innovative technologies, is poised to generate sustainable high single-digit organic sales growth and double-digit adjusted EPS growth. The company's commitment to expanding gross and operating margins, coupled with a balanced capital allocation strategy, reinforces its long-term value proposition for shareholders. As current challenges are lapped and new product launches accelerate, Abbott's growth engine is well-positioned to power continued success in the evolving global healthcare landscape, making it a compelling consideration for discerning investors.