Abbott Laboratories plans to announce its second-quarter 2025 results on July 17. Analysts expect revenues to reach $11.07 billion, representing a 6.7% increase from last year. Earnings per share (EPS) is estimated at $1.25, indicating a 9.6% rise compared to the previous year. The company’s growth in the medical devices sector is anticipated to drive these results, especially due to the popularity of continuous glucose monitoring systems and cardiac devices. The approval of the Tendyne transcatheter mitral valve replacement system also boosted this progress. Meanwhile, Abbott’s core lab business likely saw steady growth, although a decline in COVID-19 testing revenue may have affected diagnostics. In the Established Pharmaceuticals segment, strong performance is expected across various regions and therapeutic areas, supported partly by biosimilars. This segment is projected to grow by 6.1% year-over-year. Additionally, robust sales from the adult nutrition brand Ensure are anticipated to result in a 4.3% increase in nutrition segment revenue. Abbott’s favorable potential to exceed earnings estimates is reflected in its Zacks Rank of #2 and an Earnings ESP of +0.96%. Other companies like CVS Health, Cencora, and Cardinal Health show similar positive indicators, suggesting potential earnings beats. As the July 17 earnings date approaches, there’s a strong setup for a volatility-based trading strategy. Overall sentiment is positive; however, simply buying stocks without a strategy may miss out on the benefits that derivative traders can capture. The goal is to create a trade that takes advantage of the expected upward movement while protecting against potential volatility after the announcement. We are monitoring the options chain closely. Implied volatility has started to rise as expected before earnings, but it hasn’t reached the peak of previous quarters, presenting a chance for traders. For those confident that the company will not only meet but significantly raise guidance, buying call options is a straightforward approach. The Medical Devices segment is key here; in the first quarter of 2024, it experienced remarkable organic sales growth of 14.2%, driven by a 22.4% increase in Freestyle Libre sales. If this trend continues, the estimated $1.25 EPS could be on the low side, potentially leading to a sharp increase in stock price. However, following the Q1 2024 earnings beat, the stock initially surged but struggled to maintain those gains, suggesting a more tactical strategy is advised. For this reason, we prefer bull call spreads. By buying a slightly out-of-the-money call and selling a further out-of-the-money call, we can lower our entry costs and clarify our risk. This strategy works well when expecting a decent rally—not an astronomical one—aiming for a range of $115-$120 after the announcement. It allows us to benefit from the anticipated positive news about devices and the impressive 6.1% expected growth in Established Pharmaceuticals, aided by a strong global biosimilars market projected to grow over 20% annually through the end of this decade. While the outlook is bright, we should consider the challenges from diagnostics. The decline in COVID-19 testing revenue is a known issue, and if the dip is more significant than expected, it could impact market reactions. For those with a cautious approach or wanting to hedge a bullish position, put spreads offer a cost-effective way to prepare for a possible “sell the news” scenario or an unexpected earnings miss. Given the stock’s historical trend of fading after earnings releases, a bearish position might yield profits even if the headline numbers are positive. The broader market is signaling optimism for companies like Cencora and Cardinal Health, indicating a healthy sector. However, Abbott’s unique product mix makes it a distinct case. While the adult nutrition brands show promise, they may not create the kind of surprise needed for dramatic impact. Thus, our focus remains on how the growth in medical devices can outweigh any lingering weaknesses in diagnostics.

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