Medtronic stock (NYSE: MDT) is down 9% in a week, underperforming the broader markets, with the S&P500 up 0.4%. Although the company posted upbeat Q1 results last week, the stock has declined due to lower-than-expected guidance for fiscal 2024. After its recent fall, MDT stock appears to have room for growth, as discussed below.
Medtronic’s revenue was up 6% to $8.5 billion in Q4’23, compared to our forecast of $8.2 billion, driven by continued recovery in procedure volume. Looking at segments, Cardiovascular sales were up 12% and Neuroscience up 5%, while Medical Surgical, and Diabetes saw a 0.3% decline. The company held its operating margin above 29%, reflecting a modest 30 bps decline y-o-y. On a reported basis, the operating margin declined 230 bps to 18.3%. Our Medtronic Operating Income Comparison dashboard has more details (Note that LTM figures in this dashboard don’t take into account the Q4 numbers released last week). Medtronic reported adjusted earnings of $1.57 on a per share and adjusted basis, up 5% y-o-y, and it compares with our forecast of $1.56.
Although Medtronic posted upbeat Q4 results, its fiscal 2024 earnings outlook was lower than anticipated. It expects its earnings to be between $5.00 and $5.10 on a per-share and adjusted basis, compared to expected EPS of around $5.20. At the mid-point of the provided range, this reflects a 5% cut from its $5.29 figure reported in fiscal 2023. This did not sit well with the investors, evident from the recent stock price decline. Medtronic has also announced its plans to acquire South Korea-based insulin patch maker EOFlow for $738 million.
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We have updated our model to reflect the latest results. We forecast the company’s sales to rise 4% to $32.3 billion in fiscal 2024 and its earnings to be around the higher end of the guidance at $5.11. Looking at the stock price, we estimate Medtronic’s Valuation to be $93 per share, about 15% above the current market price of $81. At its current levels, Medtronic stock is trading at 16x its expected forward earnings of $5.11 on a per share and adjusted basis for fiscal 2024, compared to the last three-year average of around 21x. We have assigned a slightly lower multiple for Medtronic compared to its historical average, considering the expected cut in earnings in the near term. Furthermore, the recent uncertainty in the financial sector has raised concerns about a potential recession, which may impact Medtronic’s business.
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