An attendee walks past the Abbott booth during CES 2024 at the Las Vegas Convention Center on January 10, 2024 in Las Vegas, Nevada.
Ethan Miller | Getty Images
Immediately after the opening bell, you purchase 140 shares of Abbott Laboratories for approximately $112. Following this transaction, the Jim Cramer Charitable Trust will own 700 shares of ABT, increasing the Company’s weight in the portfolio from 1.95% to 2.42%.
I’m buying more Abbott Laboratories We continue to believe that the market is overestimating the risk of infant formula litigation, which has exacerbated the recent market downturn.
Abbott stock began to fall on Friday after the jury order. Reckitt Benckiser It seeks to pay $60 million to a plaintiff whose premature baby died after being given Reckitt’s Enfamil formula from necrotizing enterocolitis, known as NEC. Mr. Abbott is not involved in the incident.
When headlines like this are reported, markets tend to pay attention first and ask questions later. In this example, the market looks at Abbott’s approximately 1,000 pending cases and multiplies this by the $60 million payout to each plaintiff (the plaintiffs were seeking a lower amount of $25 million). It calculated that Abbott’s worst-case scenario exposure could be as much as $60. a billion.
Abbott’s official statement is: “Abbott has spent decades researching, developing, testing, and manufacturing infant formula and fortifiers for premature infants, and countless infants have benefited greatly from these products. These claims are unsubstantiated and do not advance the theory advanced by the plaintiffs’ attorneys, which is the theory advanced by the plaintiffs’ attorneys. We consider it part of standard treatment.”
There are a few things to take away from this statement. First, although a pending lawsuit claims that these premature infants developed NEC as a result of infant formula, there is no scientific data showing that Abbott’s formula causes NEC. do not. Second, premature babies don’t have many nutritional options other than Abbott and Reckitt products. This is the standard treatment as there are no alternatives.This is a completely different situation than that johnson & johnsontalc lawsuit.
Since the news was announced, Abbott’s stock has fallen about 6%, losing about $14 billion in market capitalization, compared with a 1.4% rise in the S&P 500 index. We are not lawyers, but based on the facts of the situation, this reduction seems excessive.
Abbott Labs stock price performance over the past month.
If Abbott were to settle all outstanding cases, the final number would likely be far less than the market capitalization it lost, making the exit a buying opportunity. I also bought Abbott stock on Friday.
Wall Street analysts are weighing in on the matter.
JPMorgan said last week that it believes “the final number is likely to be significantly less than the implied $60 billion. In the years to come, this number will remain at best a fraction of the total.” Stated.
In Evercore ISI’s scenario analysis, which is grounded in historical context, analysts believe the settlement could be far less than $250 million based on the current backlog of litigation. Wells Fargo is in similar territory. The Company estimates the potential settlement amount to be approximately $280 million, based on assumptions from recent litigation settlement efforts.
Meanwhile, Jefferies analysts wrote: “Although the ultimate outcome is difficult to determine, it is likely to be a manageable fine for ABT.”
I don’t mean to downplay the situation just because NEC is terrible. And it’s hard to ignore the plethora of emotions this news has generated around Abbott Labs, a high-quality healthcare company that does much more than infant formula. It may last a while. But when you compare the billions of dollars in market capitalization lost over the past week with what a potential settlement could look like, the conclusion is that this sell-off has gone too far.
(Jim Cramer’s Charitable Trust is a long ABT. See here Click here for a complete list of stocks. )
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