Earnings Beat On The Cards For Medtronic Stock?

Medtronic (NYSE: MDT) is scheduled to report its fiscal Q2 2021 results on Tuesday, November 24. We expect Medtronic to likely beat the revenue and earnings expectations, driven by improved demand for medical devices with an increase in the number of procedures performed sequentially. We expect the company to navigate well based on these trends over the latest quarter.

Our forecast indicates that Medtronic’s valuation is around $116 a share, which is 5% higher than the current market price of around $110. Our interactive dashboard analysis on Medtronic Pre-Earnings: What To Expect in Q2 has additional details.

(1) Revenues expected to be ahead of consensus estimates

Trefis estimates Medtronic’s fiscal Q2 2021 revenues to be around $7.5 Bil, roughly 6% ahead of the $7.1 Bil consensus estimate. While a deferment in elective surgeries earlier in the year amid the spread of Covid-19 hurt the company’s fiscal Q1 2021 sales, the gradual opening up of economies and resumption of procedures is likely to have aided sales in Q2. Medtronic’s Q1 fiscal 2021 sales were down 13% to $6.5 billion, led by a 13% decline in the Cardiac & Rhythm segment, a 14% decline in Minimally Invasive Therapies Group, a 15% drop in sales of Restorative Therapies Group while Diabetes Care sales were down 5%. Our dashboard on Medtronic Revenues offers more details on the company’s segments.

2) EPS also likely to be ahead of consensus estimates

Medtronic’s Q2 2021 adjusted earnings per share (EPS) is expected to be 90 cents per Trefis analysis, almost 13% above the consensus estimate of 80 cents. Medtronic’s adjusted net income of $836 million in fiscal Q1 2021 reflected a big drop from its $1.7 billion figure in the prior-year quarter. This can be attributed to increased investments in R&D, even as the spread of coronavirus meant that Medtronic’s plants were running at a lower capacity. With fixed costs remaining the same, margins were hurt for the period. That said, the company expects to improve margins sequentially in Q2 and Q3 and return to normal margins by the end of the fiscal. For the full-year, we expect the adjusted EPS to be slightly lower at $4.40 compared to $4.59 in fiscal 2020.

(3) Stock price estimate higher than the current market price

Going by our Medtronic Valuation, with a revenue estimate of around $30.0 Bil and P/E multiple of 26x in fiscal 2021, this translates into a price of $116, which is 5% above the current market price of around $110.

Although the coronavirus outbreak will have a notable impact on Medtronic’s revenue growth rate in fiscal 2021 due to a decline in the number of procedures performed, we believe the demand for medical devices will rebound as the spread of the virus subsides.

Note: P/E Multiples are based on Share Price at the end of the year and reported (or expected) Adjusted Earnings for the full year

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