How Much Can Medtronic’s Earnings Grow In Fiscal 2019?

by Trefis Team
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Medtronic (NYSE:MDT) recently reported its Q3 fiscal 2019 results, which were above our estimates. The company saw steady growth in most of its business segments. However, Cardiac & Vascular Group, which includes rhythm management devices, and balloons, among other products, saw a modest decline, primarily due to a tough comparison with the prior year quarter. Looking forward, we expect the company to post low single-digit revenue growth, and a high single-digit earnings growth for full fiscal 2019.  The growth will largely be led by its drug eluting stents, and MiniMed systems. We have created an interactive dashboard ~ A Quick Snapshot of Medtronic’s Q3 Performance And Trefis Estimates For 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 Health Care data.

Expect Revenues To Grow In Low Single-Digits In Fiscal 2019

Medtronic’s Cardiac & Vascular Group includes cardiac rhythm management devices, such as pacemakers and implantable cardioverter defibrillators (ICDs) for the diagnosis, treatment, and management of heart rhythm disorders and heart failure. It also includes coronary balloons, drug-coated balloons, and thoracic stent graft systems, among others. The segment revenues saw a modest decline in the previous quarter, amid a tough comparison, given a large order in Q3 last year, and a discontinued product line. While this will impact the segment’s overall performance for the full fiscal, the company is seeing strong growth for its Evolut PRO Valve. This should aid the overall segment sales. We forecast a modest growth in revenues to $11.50 billion in fiscal 2019.

Minimally Invasive Therapies Group, which includes devices and therapies for neurological problems, and imaging systems among other products, saw mid single-digit revenue growth in the previous quarter, led by strong demand for its advanced stapling products, endoscopic ultrasound products, and Bravo reflux testing systems. This trend should continue in the near term, and aid the overall segment revenue growth. The company plans to launch a robotic surgical system in fiscal 2020, which will likely aid the long-term segment revenue growth. However, currency headwinds can weigh on the segment revenues in the near term, and we forecast them to see a slight decline in the current fiscal. Note that the company could see a negative impact of $425 million to $475 million from currency headwinds on sales.

Looking at the Restorative Therapies Group, the company saw double-digit growth in Brain and Pain therapies for the nine month period ending January 2019. The segment primarily includes devices and implants for conditions relating to the spine, musculoskeletal system, brain, and nerves. The growth in the recent quarters can be attributed to strong sales of its Intellis spinal cord stimulation platform, and StealthStation surgical navigation systems, among other products. Looking forward, the company should continue to benefit from the existing product line, as well as its newly launched Mazor X Stealth Edition robotics guidance platform.

Medtronic’s Diabetes group has seen growth in high teens for the nine month period ending January, 2019, led by its MiniMed 670G system, which is the world’s first hybrid closed loop system that optimizes glycemic control for patients with type 1 diabetes. We expect the full fiscal growth to be in low teens, driven by expansion of 670G in international markets. Looking at the pipeline, the company will launch MiniMed 780G, which will also have bluetooth capability, in fiscal 2020.

Overall, the company should see low single-digit revenue growth in fiscal 2019. The company has guided for slight improvement in its operating margins, which along with higher revenues, should result in adjusted earnings of $5.15 per share, reflecting a high single-digit growth over the prior fiscal. Our price estimate of $112 for Medtronic is based on a 22x price to earnings multiple.

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