What To Expect From Medtronic Stock In Q3?

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Medtronic stock (NYSE: MDT) is scheduled to report its fiscal third-quarter results on Tuesday, February 23. We expect Medtronic to likely post revenues in-line, and earnings above the consensus estimates. Revenue growth is likely to be driven by improved demand for medical devices with a rebound in the volume of elective surgeries.

Our forecast indicates that Medtronic’s valuation is around $128 a share, which is 8% above the current market price of around $118. Look at our interactive dashboard analysis on Medtronic Pre-Earnings: What To Expect in Q3? for more details.

(1) Revenues expected to be above the consensus estimate

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Trefis estimates Medtronic’s Q3 fiscal 2021 total revenues to be around $7.8 Bil, in-line with the consensus estimates. While medical devices sales were heavily impacted due to the Covid pandemic, the improved demand with resumption of elective surgeries likely helped the company navigate well during the quarter. While Diabetes, Cardiac & Vascular Group and Restorative Therapies Group segments combined have seen a decline of 4% y-o-y to 5.4 billion in Q2, Minimally Invasive Therapies Group segment revenues were up 7% to $2.3 billion, leading to an overall sales decline of less than 1% in Q2 fiscal 2021. The company is expected to see an increase in volume, which will be offset by lower pricing, especially for drug-eluting stents in China due to the centralized bulk purchasing, which resulted in a 90% drop in stent prices in China. Note that the overall emerging markets account for 16% of the company’s total sales.  Our dashboard on Medtronic’s Revenues provides more details on segment-wise revenue breakup.

2) EPS likely to be above the consensus estimates

Medtronic’s Q3 2021 earnings per share (EPS) is expected to be $1.20 per Trefis analysis, 4% above the consensus estimate of $1.15. Medtronic’s Non-GAAP net income of $1.4 billion in Q2, reflected a 22% drop from its $1.8 billion profit in the prior year quarter, due to lower revenues as well as a 500 bps contraction in the net margins, owing to the increased costs during the pandemic, higher investments in R&D, as well as an increase in taxes. Looking at the full year 2021, we expect a 7% y-o-y decline in EPS to $4.30, due to margin contraction.

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

Going by our Medtronic Valuation, with an EPS estimate of around $4.30 and P/E multiple of 30x in fiscal 2021, this translates into a price of $128, which is 8% above the current market price of around $115.

Although the coronavirus outbreak has had a sizable impact on Medtronic’s business over the past few quarters, due to deferment of elective surgeries, 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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