Here’s What To Expect From Medtronic’s Q3

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Medtronic (NYSE: MDT) is scheduled to report its fiscal 2023 third-quarter results on Tuesday, February 21. We expect Medtronic stock to trade higher post Q3, with its revenues and earnings likely falling above the street estimates. The company should benefit from its new products and a better pricing environment. Not only do we expect Medtronic to report upbeat results, but we also find its stock undervalued, as discussed below. Our interactive dashboard analysis of Medtronic’s Earnings Preview has additional details.

(1) Revenues are expected to be marginally above the consensus estimate

  • Trefis estimates Medtronic’s Q3 fiscal 2023 total revenues to be around $7.6 billion, reflecting a low single-digit y-o-y decline but slightly above the $7.5 billion 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. It should also see continued strength in cardiac products.
  • 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. Medtronic expects organic revenue growth of around 4% in the second half of the current fiscal.
  • Looking at the last quarter, Medtronic’s revenue declined 3% y-o-y to $7.6 billion, primarily due to a 3.5% fall in Medical Surgical sales due to declining demand for ventilators. All its other segments, including Diabetes and Neuroscience, saw sales growth during the quarter.
  • Our dashboard on Medtronic Revenues provides more details on the company’s segments.
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(2) EPS expected to be above the consensus estimates

  • Medtronic’s Q3 fiscal 2023 earnings per share (EPS) is expected to be $1.29 per Trefis analysis, slightly higher than the $1.27 consensus estimate.
  • Medtronic’s net income of $1.7 billion in Q2 reflected a 4% fall y-o-y, as the company’s adjusted operating margins fell over 150 bps to 25.4%.
  • Looking at the full fiscal 2023, we expect EPS to be lower at $5.32, compared to the $5.55 seen in fiscal 2022.

(3) MDT stock is undervalued

  • We estimate Medtronic’s Valuation to be $106 per share, reflecting a 22% upside from its current market price of around $87.
  • At its current levels, MDT stock is trading at 16x 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 Q3 results and the 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 Feb 2023
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2023
YTD [1]
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Total [2]
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[1] Month-to-date and year-to-date as of 2/9/2023
[2] Cumulative total returns since the end of 2016

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