Will Medtronic Stock See Higher Levels Post Q4 Results After 5% Gains This Year?

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Medtronic (NYSE: MDT) is scheduled to report its fiscal 2024 fourth-quarter results on Thursday, May 23 (fiscal ends in April). We expect Medtronic stock to trade sideways post-Q4 results announcement, with its revenues and earnings expected to meet the street estimates. The company should continue to benefit from an increased procedures volume and expansion of its new products. While Medtronic will likely navigate well in Q1, we think its stock has some room for growth from its current levels of around $85. Our interactive dashboard analysis of Medtronic’s Earnings Preview has more details on how the company’s revenues and earnings will likely trend for the quarter.  So, what are some trends likely to drive Medtronic’s results, and how has the company’s stock performed?

Firstly, let us look at Medtronic’s stock performance in recent years. MDT stock has faced a notable decline of 25% from levels of $115 in early January 2021 to around $85 now, vs. an increase of about 40% for the S&P 500 over this roughly three-year period. Notably, MDT stock has underperformed the broader market in each of the last three years. Returns for the stock were -12% in 2021, -25% in 2022, and 6% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 — 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. 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.

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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? From a valuation perspective, we think it has some room for growth. We estimate Medtronic’s Valuation to be $96 per share, reflecting an upside of over 10%. MDT stock currently trades at 17x expected earnings of $5.19 per share in 2024, lower than its 20x average over the last three years.

Looking at the previous quarter, Medtronic’s revenue of $8.1 billion was up 5% y-o-y, partly due to higher sales of its MiniMed 780G systems, which anticipates and automatically adjusts insulin delivery. The Neuroscience segment saw 4.8% growth, Cardiovascular sales were up 6.1%, Medical Surgical up 3.9%, and Diabetes sales were up 12.3% year-over-year. Medtronic’s adjusted operating margin slid 70 bps to 25.2% in Q3. This resulted in the bottom line of $1.30 on an adjusted basis, aligning with the figure it reported in the prior-year quarter.

Coming to the latest quarter, we think it will be a similar trend as in the previous quarter, with Diabetes and Cardiovascular leading the organic sales growth. On the reported basis, the company may see tepid top-line growth amid forex translation losses. The organic growth will likely be driven by the company’s relatively new products, including the Micra AV pacemaker and the increased adoption of its MiniMed 680G insulin system. Medtronic expects its 2024 organic sales to rise between 4.75% and 5% from its $31.2 billion sales in fiscal 2023. Its bottom line is expected to be in the range of $5.19 to $5.21 on an adjusted basis.

While MDT stock looks like it has some room for growth, 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 May 2024
MTD [1]
2024
YTD [1]
2017-24
Total [2]
 MDT Return 7% 4% 21%
 S&P 500 Return 5% 11% 137%
 Trefis Reinforced Value Portfolio 6% 6% 651%

[1] Returns as of 5/19/2024
[2] Cumulative total returns since the end of 2016

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