Will Medtronic Stock See Higher Levels Post Q2 Results?

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Trefis
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Medtronic

Medtronic (NYSE: MDT) is scheduled to report its fiscal 2023 second-quarter results on Tuesday, November 22. We expect Medtronic to post revenues and earnings in line with the street estimates. The company should benefit from its new products and better pricing environment. We believe that MDT stock is undervalued, as discussed below. Our interactive dashboard analysis of Medtronic’s Earnings Preview has additional details.

(1) Revenues are expected to align with the consensus estimate

  • Trefis estimates Medtronic’s Q2 fiscal 2023 total revenues to be around $7.7 billion, reflecting a low single-digit y-o-y decline but aligning with the consensus estimate.
  • The company should benefit from its new products, including the Micra AV pacemaker and Abre venous self-expanding stent system for Deep Venous disease.
  • However, the Medical Surgical segment may see lower sales due to a continued decline in ventilator demand.
  • Forex headwinds may also weigh on the overall top-line growth.
  • Looking at the last quarter, Medtronic’s revenue declined 8% y-o-y to $7.4 billion, with all segments seeing lower sales. Medical Surgical, in particular, saw a large 14% drop due to declining demand for ventilators.
  • Our dashboard on Medtronic Revenues provides more details on the company’s segments.
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(2) EPS likely to be in line with the consensus estimates

  • Medtronic’s Q2 fiscal 2023 earnings per share (EPS) is expected to be $1.28 per Trefis analysis, in line with the consensus estimate of $1.28.
  • Medtronic’s net income of $1.5 billion in Q1 reflected an 18% fall y-o-y, as the company’s adjusted operating margins fell over 300 bps to 23.9%.
  • Looking at the full fiscal 2023, we expect EPS to be marginally higher at $5.58, compared to the $5.55 seen in fiscal 2022.

(3) MDT stock is undervalued

  • We estimate Medtronic’s Valuation to be $118 per share, reflecting a significant 40% upside from its current market price of around $85.
  • At its current levels, MDT stock is trading at 15x its expected forward earnings, compared to the last three-year average of 20x, implying that MDT stock is attractive from a valuation point of view.
  • If the company reports upbeat Q2 results and full fiscal year guidance is better than the street estimates, it is likely that the P/E multiple will be revised upward, resulting in higher levels for MDT stock.

While MDT stock may see higher levels, the Covid-19 crisis has created many pricing discontinuities, which can offer attractive trading opportunities. For example, you’ll be surprised at how counter-intuitive the stock valuation is for Becton Dickinson vs. Amerco.

What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

Returns Nov 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
 MDT Return -5% -19% 17%
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 Trefis Multi-Strategy Portfolio 8% -16% 231%

[1] Month-to-date and year-to-date as of 11/16/2022
[2] Cumulative total returns since the end of 2016

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