Shares of Abbott Laboratories could rise to $143, according to a Wall Street analyst. Is it a purchase around $108?

According to an optimistic Wall Street analyst, Abbott Laboratories (ABT -0.84%) stocks could outperform investors. Following the company’s latest earnings report, Matt Miksic of Barclays maintained its buy rating and raised its price target to $143 per share.

At recent prices, Miksic’s price target predicts a roughly 32% gain once the rest of the stock market sees Abbott Laboratories in the same light as he does.

In the “pro” column, Abbott Laboratories recently announced a lucrative deal with Medtronic (NYSE: MDT)another leading medical device manufacturer. In the “according” column, Abbott drew a huge penalty related to a baby formula lawsuit.

Can Abbott overcome its challenges to deliver market-beating performance? Let’s look at both sides.

Reasons to buy Abbott Laboratories now

It has been over 100 years since Abbott Laboratories shareholders received a quarterly dividend. In addition, the company has increased its payout for 52 consecutive years. At recent prices, the stock offers an uninspiring 2% yield, but could become a great source of passive income in the coming years.

Abbott’s dividend payout isn’t just going up, it’s going up. It’s up 72% over the past five years, thanks in part to the company’s success with sales of diabetes devices that could go up an even higher gear.

The latest version of Abbott’s continuous blood glucose monitor (CGM), the FreeStyle Libre 3, was launched in the US market in late 2022. That was about eight months ahead of its main competitor, Dexcomof the G7.

Abbott maintained its early lead with second-quarter FreeStyle Libre sales up 18.4% year-over-year to $1.6 billion. In the same time frame, Dexcom reported revenue that rose 15% to $1 billion.

As a diversified conglomerate, Abbott can afford to price its CGM competitively, and that’s not the only reason to expect continued dominance in this space. Abbott recently announced a new partnership with Medtronic, the world’s largest medical device manufacturer.

Abbott will contribute CGM technology to a new integrated system that includes Medtronic’s automated insulin delivery technology and its smart insulin pens.

Abbott’s CGM franchise is an important growth driver, but it’s not the only revenue stream growing. The company’s established nutrition and pharmaceutical segments reported strong growth in the most recent quarter, as did diagnostics if you exclude the impact of COVID-19 testing.

With all of its operating segments moving in the right direction, Abbott reported first-half total sales that were up 10% year-over-year, if you ignore the COVID-19 tests and negative currency effects.

Abbott’s stock isn’t as appreciated as you’d expect for a company that’s growing sales by a double-digit percentage. At recent prices, you can get shares for about 23 times the midpoint of management’s 2024 adjusted earnings estimate.

Reason to avoid Abbott Laboratories

While Abbott’s investors are most interested in its innovative medical devices, it is also a leading maker of infant formula and nutritional supplements for adults.

However, Abbott’s nutrition segment could become an albatross. In July, a jury in St. Louis ordered the company to pay $495 million over allegations that it concealed the risk that its formula for premature infants could cause a severe intestinal complication called necrotizing enterocolitis (NEC). The company plans to appeal.

The recent verdict against Abbott may not be the last. As of the end of January, Abbott was a party to 993 lawsuits in state and federal courts.

Is the stock a buy now?

Abbott does not expect a material loss from the NEC lawsuits and intends to appeal it. I agree that proving that Abbott’s baby formula is responsible for the NEC cases will be an uphill battle, so there is a good chance that the first verdict against Abbott could be overturned on appeal. Missouri civil law does not require unanimous jury verdicts, and in this case only nine of 12 agreed.

Over the past year, Abbott’s operations generated $5.7 billion in free cash flow, and the company needed just 65% of that amount to meet its dividend obligation. Even though the company will spend more than $1 billion related to the NEC lawsuits, it will still have plenty of profits left over to invest in the future and increase its dividend payout. Buying the stock now and holding onto it for the long term seems like a smart move.