Is Abbott Laboratories (ABT) a Buy After the Earnings Selloff?

The recent selloff in Abbott Laboratories (ABT) has left investors questioning whether the stock's sharp decline—over 8% in early trading after its Q2 2025 earnings report—represents a buying opportunity or a warning sign. While the company's core fundamentals remain robust, the market's reaction underscores the tension between near-term headwinds and long-term growth catalysts. To evaluate whether ABT is a buy post-selloff, we must dissect the drivers of the downturn, assess the company's competitive positioning, and weigh its valuation against industry peers.

Near-Term Headwinds: Guidance Cuts and Segment Underperformance

Abbott's Q2 earnings report, while strong on the surface, revealed cracks in its short-term outlook. The company trimmed its full-year adjusted EPS guidance to $5.10–$5.20 from a previous range of $5.05–$5.25—a revision that fell short of the $5.16 midpoint analysts had expected. This downward adjustment, coupled with a narrower organic sales growth forecast (7.5–8% vs. 7.5–8.5% previously), signaled caution about near-term challenges.

The Diagnostics segment, once a pandemic-era growth engine, remains a drag. Organic sales declined 1.4% in Q2, driven by fading demand for COVID-19 testing and ongoing pressure from China's volume-based procurement programs. Similarly, the Nutrition segment underperformed expectations, despite strong demand for products like Ensure and Glucerna. CEO Robert Ford attributed this to shifting consumer behaviors and competitive dynamics, but the miss raised concerns about the segment's resilience.

Adding to the unease is the ongoing litigation over Abbott's infant formula for preemies, which, while a small part of its revenue, has created reputational and regulatory risks. These factors, combined with macroeconomic uncertainties like potential Trump-era tariffs, contributed to the selloff.

Long-Term Catalysts: Innovation and Diversified Growth

Despite these near-term issues, Abbott's long-term prospects remain compelling. The Medical Devices segment, which grew 13.4% in Q2, is a standout. The FreeStyle Libre continuous glucose monitor (CGM) continues to dominate the diabetes care market, with sales up 21.4% organically. This product line not only benefits from the rising prevalence of diabetes but also aligns with the broader shift toward digital health and remote patient monitoring.

The company's pipeline is another key strength. Abbott recently received FDA approval for its TriClip™ transcatheter tricuspid repair system, expanding its leadership in structural heart disease. Additionally, the Tendyne™ transcatheter mitral valve replacement system—approved in May 2025—positions Abbott to capture growth in a high-margin, underserved market. These innovations, coupled with its strong presence in emerging markets (e.g., Asia, Latin America), provide a durable growth foundation.

Valuation: A Premium for Innovation?

Abbott's valuation appears elevated relative to its near-term growth. The stock trades at a trailing P/E of 15.51 and a forward P/E of 22.90, with a PEG ratio of 2.39. By these metrics, ABT is priced at a premium to its earnings growth. However, this premium must be contextualized against its peers.

Compared to Medtronic (MDT), which trades at a forward P/E of 14.41, and Johnson & Johnson (JNJ) at 19.20, Abbott's valuation is higher but justified by its stronger growth profile. For instance, Abbott's Medical Devices segment is expanding at a faster rate than Medtronic's, and its diabetes care business is a unique differentiator. The company's robust cash flow—$2.3 billion in operating cash flow in Q1 2025—and a 49% payout ratio (with 52 consecutive years of dividend growth) further support its valuation.

Is the Selloff a Buying Opportunity?

The selloff appears to have overcorrected. While the guidance cuts and segment underperformance are valid concerns, they are largely temporary. Abbott's core businesses—Medical Devices and Diabetes Care—are thriving, and its R&D pipeline positions it to capitalize on long-term trends in healthcare. The valuation, though elevated, reflects confidence in these growth drivers and is in line with historical averages for innovative healthcare firms.

Investors should consider ABT as a buy for two reasons:
1. Margin of Safety: The stock's ~8% drop has likely priced in much of the near-term risk, creating a more attractive entry point.
2. Diversified Growth: Abbott's balanced portfolio across devices, diagnostics, and pharma reduces exposure to sector-specific headwinds.

However, caution is warranted. The Diagnostics segment's recovery is uncertain, and regulatory or geopolitical risks could resurface. For risk-averse investors, a partial position or dollar-cost averaging over time may be prudent.

In conclusion, Abbott Laboratories' selloff offers a compelling case for long-term investors. The company's innovation-driven growth, strong cash flow, and strategic diversification outweigh its near-term challenges. While the path to $5.10–$5.20 EPS is not without risks, the fundamentals suggest that ABT is more likely to rebound than to falter.