What Factors Will Drive Medtronic’s Earnings Growth In Q3 FY19?

by Trefis Team
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Medtronic (NYSE:MDT) is set to report its Q3 fiscal 2019 earnings on February 19, and we expect the company to post mid-single-digit top line and bottom line growth. The company will likely see steady growth across its segments. Coronary & Structural Heart, along with Diabetes, should lead this growth, given the higher demand for its drug eluting stents, and MiniMed systems. We have created an interactive dashboard ~ What To Expect From Medtronic’s Q3 Fiscal 2019? You can adjust various drivers to see the impact on the company’s overall earnings. Below we discuss our forecast in detail. In addition, here is more Healthcare data.

Expect Revenues To Grow In Mid-Single Digits In Q3 FY19

Cardiac & Vascular Group revenues will likely grow in mid-single-digits to around $2.90 billion in Q3. Within Cardiac & Vascular Group, Cardiac Rhythm & Heart Failure should continue to see slow growth, while Coronary & Structural heart could see mid-to-high single-digit growth. While the cardiac rhythm management devices market is expected to grow at a CAGR of 7% over the next few years, there is a strong competition in the market, with companies such as Abbott, Boston Scientific, and Biotronik, along with Medtronic, looking to gain share. Medtronic’s Coronary & Structural Heart division has seen strong demand for its Evolut PRO Valve, along with strong adoption of the Resolute Onyx drug-eluting stent in the recent past. We expect this trend to continue in the near term.

Minimally Invasive Therapies Group could see mid-single-digit revenue gains, primarily led by its Surgical Innovations division, which has seen steady growth for LigaSure vessel sealing instruments, along with advanced stapling products in the recent past. Respiratory, Gastrointestinal, & Renal also saw strong growth in patient monitoring products, and this trend will likely continue in Q3 as well. Looking at Restorative Therapies Group, the company saw double-digit growth in Brain and Pain therapies in the first half of fiscal 2019. This can be attributed to strong sales of its Intellis spinal cord stimulation platform, and StealthStation S8 surgical navigation systems, among other products. Note that Medtronic completed the acquisition of Mazor Robotics in Q3 fiscal 2019. The company in its previous quarter earnings conference call stated that it plans to integrate Mazor X Robot with its StealthStation system, in order to have a competitive advantage in the spine market. Mazor Robotics overall sales were a little under $65 million in 2017, and it will be unlikely to have any meaningful contribution to Medtronic’s top line in the near term.

Medtronic’s Diabetes group has seen growth in high twenties percent in the recent quarters, led by its new MiniMed 670G system, which is the world’s first hybrid closed loop system that optimizes glycemic control for patients with type 1 diabetes. Also, the new Guardian Connect CGM system will aid the overall segment revenue growth. Guardian Connect is a continuous glucose monitoring system designed for people on insulin injections. It can be connected with apps on mobile phones and predict and alert about highs and lows of glucose levels. We forecast the segment revenues to grow in high single-digits to around $635 million in Q3, in line with the company’s guidance for the segment.

Overall, the company should see steady growth across its segment in Q3 fiscal 2019. The company has guided for slight improvement in its operating margins, which along with higher revenues should result in adjusted earnings of $1.24 per share, reflecting a 5.50% growth over the prior year quarter. We currently have a $110 price estimate for Medtronic, which we will update post the Q3 results announcement.

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