What Will Drive Medtronic’s Near Term Growth

by Trefis Team
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Medtronic (NYSE:MDT) recently posted its Q1 FY19 numbers, which were better than street estimates, led by a strong growth in the diabetes business. The company also revised its guidance upward, and expects strong growth in diabetes for the full year. We currently forecast a 5% growth in overall revenues, primarily led by diabetes, as well as cardiovascular and neurological products. We have created an interactive dashboard ~ What Is The Outlook For Medtronic ~ on the company’s expected performance in fiscal 2019. You can adjust the revenue and margin drivers to see the impact on the company’s overall revenues, earnings, and price estimate.

We forecast the company’s Diabetes segment revenues to grow in mid-teens to north of $2.40 billion in fiscal 2019. This growth will primarily be led by its MiniMed 670G hybrid closed loop system, which was recently launched in the U.S. The Diabetes segment sales in the U.S. were up 33% in Q1. While the company currently sells 640G in the international markets, it will soon roll out the 670G. We expect the MiniMed series to drive near term segment revenue growth.

Cardiovascular Products revenues have grown at an average annual rate of around 7.5% over the last 5 years. The growth in the recent past has been led by its Coronary and Structural Heart (CSH) business, and we expect this trend to continue. We currently forecast the segment revenues to grow in mid-single digits in the current fiscal, primarily led by CSH business, which is seeing higher demand for Evolut PRO valve, and Resolute Onyx drug-eluting stent.

Looking at the Neurological Products segment, we expect brain therapies to drive near term growth. In fact, neurovascular and neurosurgery grew in the high teens for brain therapies in Q1. Neurosurgery growth can be attributed to strong sales of the O-arm 2, StealthStation S8, Mazor X, and Visualase MRI systems. We forecast mid-single digit segment revenue growth in fiscal 2019,  primarily aided by the brain business.

Overall, we expect the Diabetes segment to lead near term growth for Medtronic. We currently forecast adjusted earnings of $5.15 per share in fiscal 2019, and a price to earnings multiple of 21x by the end of fiscal 2019, to arrive at our price estimate of $109 for Medtronic, which is at a 15% premium to the current market price.


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