“Abbott is dust low cost” after a stunning authorized victory and confirms our conviction
Shares of Abbott Laboratories jumped on Friday after the club holding company scored a surprise victory in a test over the safety of its formula for premature babies. The news that Abbott Labs' special formula was not responsible for causing a young boy to develop a serious intestinal disease known as necrotizing enterocolitis (NEC) was revealed by a Missouri state court jury Thursday evening – concluding a roughly five-week trial , which was closely watched by investors . The jury also cleared Mead Johnson, a subsidiary of Reckitt Benckiser, and St. Louis Children's Hospital of liability in the case. The plaintiffs had argued that Abbott and Mead Johnson's formulas – used to treat premature babies in neonatal intensive care units – increased the risk of developing NEC and that the companies failed to properly disclose that risk. Abbott and Mead Johnson, for their part, strongly deny the allegations and defend the products as medically necessary treatments for babies in certain cases where breast milk cannot be used. “We are pleased with the jury’s decision,” Abbott spokesman Scott Stoffel said in a statement to CNBC Friday morning. “The decision confirms what we, the medical community and regulators have said: that preterm formula products are safe and there is no reliable scientific evidence that they cause or contribute to causing NEC. Abbott stands by the critical role of its premature infant formula.” and breast milk boosters are used in hospital to feed premature infants.” ABT YTD Mountain Abbott Laboratories' stock performance since the beginning of the year. Big picture Investors were nervous ahead of Thursday night's ruling because both companies had lost similar cases this year – Mead Johnson in March, followed by Abbott Labs in late July. In particular, Mead's defeat in March brought the NEC issue into sharper focus and triggered a sharp and sustained sell-off in both companies' shares. We purchased additional shares of Abbott Labs on several occasions during the downtrend because we believed that the magnitude of the decline in market value did not adequately reflect the potential damages the company would have to pay if its litigation went badly despite the medical community on its side . That includes three major U.S. health agencies that issued a statement last month supporting specialty infant formulas like Abbott's. The legal overhang at Abbott Labs has been real, even as shares have found some traction in recent months. By Thursday's close, the stock was up about 13% from its 2024 low set on July 18. Abbott's highest closing price of the year of $120.96 per share came on March 8 – before NEC fears became prevalent. Based on Friday's premarket earnings, the stock was on track to approach those levels. Bottom line: Abbott Labs is still facing other cases around the country over its specialty formulas, but Thursday night's victory is significant. This is also shown by the share reaction, which rose by more than 4.5%. “They won a case they were supposed to lose. … The day for plaintiffs to take the matter to Abbott is over,” Jim Cramer said on CNBC Friday. “This stock is dirt cheap,” he added. According to FactSet, Abbott shares traded at about 22 times expected earnings estimates on Friday, below their five-year average of 24. One reason this win is such a big deal: The venue for this case was widely considered plaintiff-friendly, Cramer has repeatedly noted that the case that Abbott Labs lost in July was also heard in Missouri state court. Those concerns intensified during the trial in October, when the judge did not allow the jury to see an updated statement from U.S. health authorities. “There is no conclusive evidence that preterm formula causes NEC,” the Food and Drug Administration, the Centers for Disease Control and Prevention and the National Institutes of Health wrote in an October statement. We announced at the time that this statement was a victory for Abbott, but had to temper our expectations after the judge made his decision. Still, we expected that Abbott Labs might lose this case, but at least since the trials began in other states, the company would most likely be able to use the supportive opinion from the FDA, CDC, and NIH to support its defense . With victory in hand, Abbott Labs will now begin the next phase of its legal battle on much stronger ground. The hope is that the conversation about Abbott Labs ultimately focuses entirely on the attractive fundamentals laid out in its third-quarter earnings report last month. If that happens, healthcare investors should like what they hear. (Jim Cramer's Charitable Trust is long ABT. See a full list of stocks here.) As a subscriber to CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable foundation's portfolio. If Jim discussed a stock on CNBC television, he waits 72 hours after the trade alert is issued before executing the trade. THE INVESTING CLUB INFORMATION SET FORTH ABOVE IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY, ALONG WITH OUR DISCLAIMER. THERE ARE NO fiduciary duty or duty IN RECEIVING YOUR INFORMATION PROVIDED IN CONNECTION WITH THE INVESTMENT CLUB. NO SPECIFIC RESULTS OR PROFITS ARE GUARANTEED.
Stacey Wescott | Chicago Tribune | Tribune News Service | Getty Images
Abbott Laboratories Shares jumped on Friday after Club Holding secured a surprise victory in a test over the safety of its infant formula for premature babies.
Comments are closed.