Is There More Room For Growth In Medtronic Stock?

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[Updated: Aug 25, 2021] Medtronic Stock Update

Medtronic (NYSE:MDT) recently reported its fiscal Q1 2022 results, which were better than our estimates. The company reported revenues of $8.0 billion, slightly above ours and the consensus estimate of $7.9 billion. Similarly, the EPS of $1.41 was comfortably above the $1.35 per Trefis and $1.32 consensus estimates. The strong performance was led by an uptick in demand for medical devices, following a rise in volume of elective surgeries. This can be attributed to higher vaccination rates in the U.S. However, the spread of the delta variant did impact the overall procedure volume, and it may also impact the company’s Q2 performance. Looking forward, the company revised its earnings guidance slightly upward to $5.70 per share, at mid-point of its range, compared to $5.65 earlier. As such, after a good Q1, MDT stock rose over 3% following the earnings release on Aug 24.

We have updated our model following the Q1 release. We now forecast sales to be $33.2 billion for the full-fiscal 2022, up 10% y-o-y, compared to our previous estimate of around $33.0 billion. Looking at the bottom line, we now estimate adjusted EPS to be $5.75, at the higher end of the company’s provided guidance, and slightly above our earlier estimate of $5.71. Given that the changes to our revenues and earnings forecast are not material, our revised Medtronic Valuation is at $149 per share, slightly above our prior estimate of $148. Our valuation for Medtronic is based on $5.75 expected EPS and 26x P/E multiple for fiscal 2022. This reflects a 12% premium to the current market price of $133, implying that there is still some room for growth in MDT stock, in our view.

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[Updated: Aug 20, 2021] Medtronic Q1 Fiscal 2021 Earnings Preview

Medtronic stock (NYSE: MDT) is scheduled to report its fiscal first-quarter results on Tuesday, Aug 24. We expect Medtronic to likely post revenues and earnings largely in-line with the consensus estimates. The company is likely to benefit from an improved demand for medical devices with a rebound in the volume of elective surgeries, a trend seen with other medical device companies as well. Furthermore, our forecast indicates that Medtronic’s valuation is around $148 per share, which is 15% above the current market price of around $129, implying that MDT stock has more room for growth from its current levels. Our interactive dashboard analysis on Medtronic Pre-Earnings: What To Expect in Q1? has more details.

(1) Revenues expected to be in-line with the consensus estimate

Trefis estimates Medtronic’s Q1 fiscal 2022 total revenues to be around $7.9 billion, in-line with the consensus estimates. While medical devices sales were heavily impacted due to the Covid pandemic, the improved demand with a rebound in volume of procedures likely helped the company navigate well during the quarter. In Q4 fiscal 2021, the company reported a solid 36% y-o-y growth in revenue, led by a strong 64% surge in neuroscience and a 54% jump in cardiovascular segment sales. Our dashboard on Medtronic’s Revenues provides more details on segment-wise revenue breakup.

2) EPS likely to be slightly above the consensus estimates

Medtronic’s Q1 fiscal 2022 earnings per share (EPS) is expected to be $1.35 per Trefis analysis, slightly above the consensus estimate of $1.32. Medtronic’s Non-GAAP net income of $2.0 billion in Q4 fiscal 2021, reflected a sharp 2.6x growth from its $777 million profit in the prior year quarter, primarily due to growth in revenues as well as net margins expanding over 1000 bps, with operating expenses growing at a slower pace compared to the revenues. Looking at the full fiscal 2022, we expect a 29% y-o-y growth in EPS to $5.71, compared to $4.43 in fiscal 2021.

(3) Stock price estimate 15% above the current market price

Going by our Medtronic Valuation, with an EPS estimate of around $5.71 and P/E multiple of 26x in fiscal 2022, this translates into a price of $148, which is 15% above the current market price of around $129. At its current levels of $129, MDT stock is trading at 23x its forward full-year earnings, and this compares with levels of nearly 30x seen as recently as late 2020.

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

While MDT stock looks like can gain more, 2020 has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how counter-intuitive the stock valuation is for Mettler vs Abbott.

See all Trefis Price Estimates and Download Trefis Data here

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