After A 6% Rise This Month Should You Pick Medtronic Stock Ahead of Its Q2?

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Medtronic (NYSE: MDT) is scheduled to report its fiscal 2024 second-quarter results on Tuesday, November 21. We expect Medtronic stock to trade sideways post-Q2 results announcement, with its revenues and earnings expected to miss the street estimates marginally. The company should continue to benefit from its new products and a better pricing environment. So, what are some trends likely to drive Medtronic’s results, and how has the company’s stock performed?

MDT stock has suffered a sharp decline of 35% from levels of $115 in early January 2021 to around $75 now, vs. an increase of about 20% for the S&P 500 over this roughly 3-year period. Notably, MDT stock has underperformed the broader market in each of the last 3 years. Returns for the stock were -12% in 2021, -25% in 2022, and -4% in 2023 (YTD). In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 18% in 2023 (YTD) – indicating that MDT underperformed the S&P in 2021, 2022, and 2023.

In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Health Care sector, including LLY, UNH, and JNJ, and even for the megacap stars GOOG, TSLA, and MSFT.

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In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index, less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.

Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could MDT face a similar situation as it did in 2021, 2022, and 2023 and underperform the S&P over the next 12 months – or will it see a recovery? Our forecast indicates that MDT stock is undervalued, as discussed below.

(1) Diabetes Segment To Drive Sales

  • Trefis estimates Medtronic’s Q2 fiscal 2024 total revenues to be around $7.8 billion, reflecting a low single-digit y-o-y rise but marginally below the $7.9 billion consensus estimate.
  • The company should benefit from its new products, including the Micra AV pacemaker and Onyx Frontier drug-eluting stent. It should also see continued strength in cardiac products.
  • Top-line growth will likely be driven by the increased adoption of its MiniMed 680G insulin system in the international markets. Earlier this year, 780G was launched in the U.S. along with Micra AV2 and Micra VR2 leadless pacemakers.
  • Looking at the last quarter, Medtronic’s revenue was up 4.5% to $7.7 billion. The Cardiovascular and Medical Surgical revenue grew 5.5%, Neuroscience was up 4.9%, and Diabetes sales were up 6.8%.
  • Our dashboard on Medtronic Revenues provides more details on the company’s segments.

(2) EPS expected to be slightly below the consensus estimates

  • Medtronic’s Q2 fiscal 2024 earnings per share (EPS) is expected to be $1.17 per Trefis analysis, marginally below the consensus estimate of $1.18.
  • Medtronic’s net income of $1.6 billion in Q1 reflected a 6% rise y-o-y, as the company’s adjusted operating margin expanded 90 bps to 24.8%.
  • Looking at the full fiscal year 2024, we expect EPS to be lower at $5.09, compared to the $5.29 seen in fiscal year 2023.

(3) MDT stock is undervalued

  • We estimate Medtronic’s Valuation to be $97 per share, reflecting a solid 30% upside from its current market price of around $75.
  • At its current level of $75, MDT stock is trading at just 15x its forward expected earnings compared to its last four-year average of 21x.
  • If the company reports upbeat Q2 results and the 2024 guidance is better than the street estimates, the P/E multiple will likely be revised upward, resulting in higher levels for MDT stock.

While MDT stock looks undervalued, it is helpful to see how Medtronic’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

Returns Nov 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
 MDT Return 6% -4% 5%
 S&P 500 Return 7% 17% 101%
 Trefis Reinforced Value Portfolio 6% 25% 541%

[1] Month-to-date and year-to-date as of 11/17/2023
[2] Cumulative total returns since the end of 2016

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