Why Biden's Action Plan Is Bullish For COVID-19 Testing Stocks

On Thursday, President Joe Biden revealed his new COVID-19 action plan, which includes $2 billion in government spending on 280 million rapid point of care and at-home COVID-19 tests.

On Friday, Bank of America analyst Bob Hopkins said Biden’s new plan is good news for test manufacturers, including Becton Dickinson and Co (NYSE: BDX) and Abbott Laboratories (NYSE: ABT).

The Numbers: Abbott currently has production capacity to produce 75 million rapid tests per quarter, Hopkins said. Becton Dickinson has a quarterly capacity of around 36 million tests. The company plans to start shipping a new at-home version of its Veritor test in October.

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Biden emphasized affordability and cost management during his presentation, so investors will have to wait on clarity regarding pricing and margins for test makers. Dividing $2 billion by 280 million tests suggests each test could be priced in the $7 range.

The Earnings Impact: Hopkins said the new plan gives him even more conviction that both Abbott and Becton Dickinson will surpass 2022 consensus EPS estimates.

“While investors are unlikely to value testing revenue as recurring given the uncertain nature of COVID, the EPS cushion created has real value, in our view, especially in an uncertain time,” Hopkins said.

Wall Street is pricing in less than $400 million in COVID-19 testing revenue for Abbott and Becton Dickinson in 2022, but Hopkins said that estimate is overly conservative.

Bank of America has a Buy rating and $133 price target for Abbott Labs and a Buy rating and $265 price target for Becton Dickinson.

Benzinga’s Take: Demand for testing will likely stay elevated even once the pandemic has started to significantly subside. In addition, scientists say COVID-19 variants will likely stay around forever like the flu or the common cold, so COVID-19 tests may continue to be a source of at least limited revenue for the foreseeable future.

President Joe Biden. Benzinga file photo by Dustin Blitchok.