Attendees walk by the Abbott booth during CES 2024 on the Las Vegas Convention Center on January 10, 2024 in Las Vegas, Nevada.
Ethan Miller | Getty Images
Shortly after the opening bell, we will probably be buying 140 shares of Abbott Laboratories at roughly $112. Following the trade, Jim Cramer’s Charitable Trust will own 700 shares of ABT, increasing our weighting within the portfolio to 2.42% from 1.95%.
We’re buying more Abbott Laboratories into its recent weakness as we proceed to imagine the market is overestimating the danger of infant formula litigation.
Abbott shares began its slide Friday after a jury ordered Reckitt Benckiser to pay $60 million to a plaintiff whose premature baby died of necrotizing enterocolitis, also often called NEC, after being fed Reckitt’s Enfamil formula. Abbott was not involved on this case.
Every time headlines like this break, the market tends to shoot first and ask questions later. In this instance, the market checked out Abbott’s roughly 1,000 pending lawsuits and multiplied it by the $60 million payout to at least one plaintiff — who was looking for a smaller figure of $25 million — and calculated that Abbott’s worst-case scenario exposure could possibly be as much as $60 billion.
Here is Abbott’s official statement: “Abbott has spent a long time researching, developing, testing and producing formulas and fortifiers for premature infants, and countless infants have benefitted tremendously from these products. These allegations are without merit, advancing a theory promoted by plaintiffs lawyers moderately than the medical community, which considers these products a part of the usual of look after premature infants.”
There are a couple of key things to know from this statement. First, there is no such thing as a scientific data that shows Abbott’s formula causes NEC though the pending lawsuits allege these premature infants developed NEC in consequence of the infant formula. Second, premature infants do not have many feeding options for nutrition beyond Abbott’s and Reckitt’s products. It’s the usual of care because there’s an absence of alternatives. This can be a completely different situation from Johnson & Johnson‘s talc litigation.
For the reason that news broke, Abbott’s stock price has fallen roughly 6%, compared with 1.4% gain within the S&P 500, and has lost about $14 billion of market cap. We will not be lawyers, but this decline looks way too excessive based on the facts across the situation.
Abbott Labs’ stock performance over the past month.
Within the event Abbott tries to settle the entire outstanding lawsuits, the ultimate number would likely be far below the market cap the corporate has lost, making this recent pullback a buying opportunity. We also bought some Abbott stock on Friday.
Wall Street analysts have weighed in on the matter.
JPMorgan said last week they think “the last word number would likely be substantially lower than the $60 billion implied…we would put the number at a small fraction at best in a few years from now.”
In Evercore ISI’s scenario evaluation based on historical context, analysts think a settlement could possibly be well under $250 million based on current cases outstanding. Wells Fargo is in similar territory. The firm estimated a possible settlement of roughly $280 million based on their assumptions of recent litigation settlement efforts.
Meanwhile, Jefferies analysts wrote, “the last word consequence is difficult to find out, but would more than likely end in a manageable high quality for ABT.”
We do not need to make light of the situation because NEC is terrible. And we won’t ignore the overhang this news has created around Abbott Labs, a high-quality health-care company that has loads more going for it beyond baby formula. It could linger for a while. Nevertheless, after we compare the billions of lost market capitalization over the past week to what a settlement could potentially appear to be, our conclusion is that this sell-off is overdone.Â
(Jim Cramer’s Charitable Trust is long ABT. See here for a full list of the stocks.)
As a subscriber to the CNBC Investing Club with Jim Cramer, you’ll 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 trust’s portfolio. If Jim has talked a few stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade.
THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY, TOGETHER WITH OUR DISCLAIMER. NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
