What’s Next For Medtronic Stock After A Mixed Q2?

MDT: Medtronic logo

[Updated: Nov 26, 2021] Medtronic Earnings Update

Medtronic (NYSE:MDT) recently reported its Q2 FY22 results, which were mixed with revenue slightly below, and earnings above our estimates. The company reported sales of around $7.8 billion (up 3% y-o-y), compared to our estimate of $8.0 billion. While cardiovascular and neuroscience segments revenue grew over 3% each, medical surgical segment sales were up under 1%. The company’s management stated that the impact of Covid-19 was greater than earlier anticipated. Our dashboard on Medtronic’s Revenues offers more details on the company’s segments.

Looking at the bottom-line, the company reported adjusted earnings of $1.32 per share, compared to $1.02 in the prior year quarter. The earnings were slightly above our forecast of $1.30 per share and the $1.29 per share consensus estimate. The company saw 470 bps operating margin expansion, bolstering the overall earnings growth.

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Following a mixed performance in Q2FY22, Medtronic lowered its full-fiscal outlook, with revenue now estimated to grow between 7% and 8%, compared to its prior guidance of 9% growth. However, the company affirmed its earnings outlook of $5.65 to $5.75.

We have also updated our model following the Q2 release. We are maintaining our sales forecast to be around $33 billion in fiscal 2022, with  Medtronic to see a strong uptake in 780G insulin pumps and its continuous glucose monitoring system – Guardian 4 (currently awaiting regulatory approvals). We also expect EPS to be at $5.71, compared to $4.43 in fiscal 2021, and near to the mid-point of the company’s provided range. Given these changes to our forecasts, we have revised our Medtronic Valuation to $144 per share, based on $5.71 expected adjusted EPS and a 25x P/E multiple for fiscal 2022, reflecting a 26% upside from its current levels of $114, implying that MDT stock is currently undervalued and it will likely see higher levels in the near term, in our view.


[Updated: Nov 19, 2021] Medtronic Q2 FY22 Earnings Preview

Medtronic stock (NYSE: MDT) is scheduled to report its fiscal second-quarter results on Tuesday, Nov 23. 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. However, the rise of the delta variant, and its impact on overall healthcare services in some geographies, may impact the overall earnings growth.

Medtronic in its Q1 earnings conference call stated that it is seeing a slowdown in total volume of procedures entering into Q2. That said, we expect the company to navigate well over the latest quarter led by economic recovery and rising demand for medical devices. Furthermore, Trefis’ forecast indicates that Medtronic’s valuation is $149 per share, which is 27% higher than the current market price of around $118, implying that the stock is undervalued, in our view. Our interactive dashboard analysis on Medtronic’s Pre-Earnings has additional details.

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

Trefis estimates Medtronic’s Q2 fiscal 2022 total revenues to be around $8.0 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 Q1 fiscal 2022, the company reported a solid 23% y-o-y growth in revenue, led by a 29% growth in neuroscience as well as in medical surgical business, while cardiovascular segment sales were up 19%, and this trend could continue, albeit revenues growing at a slower pace given the impact of the delta variant on overall procedures volume. Our dashboard on Medtronic’s Revenues provides more details on segment-wise revenue breakup.

2) EPS likely to be in-line with the consensus estimates

Medtronic’s Q2 fiscal 2022 earnings per share (EPS) is expected to be $1.30 per Trefis analysis, in-line with the consensus estimate of $1.29. Medtronic’s Non-GAAP net income of $1.9 billion in Q1 fiscal 2022, reflected a sharp 2.3x growth from its $836 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 30% y-o-y growth in EPS to $5.75, compared to $4.43 in fiscal 2021.

(3) Stock price estimate 27% above the current market price

Going by our Medtronic Valuation, with an EPS estimate of around $5.75 and P/E multiple of 26x in fiscal 2022, this translates into a price of $149, which is 27% above the current market price of around $118. In fact, at its current levels of $118, MDT stock is trading at 20x its forward full-year earnings, and this compares with levels of nearly 30x seen as recently as late 2020, implying that the stock has more room for growth.

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, 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.

What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio that’s beaten the market consistently since the end of 2016.

Returns Nov 2021
MTD [1]
YTD [1]
Total [2]
MDT Return -9% -5% 57%
S&P 500 Return 1% 22% 105%
Trefis MS Portfolio Return -2% 49% 304%

[1] Month-to-date and year-to-date as of 11/26/2021
[2] Cumulative total returns since 2017

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