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Here's How Medtronic (MDT) Is Placed Ahead of Q4 Earnings

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Medtronic (MDT - Free Report) is expected to release fourth-quarter fiscal 2024 results on May 23 before the opening bell.

Let’s delve into the factors that might have influenced this medical device major’s results in this to-be-reported quarter. However, it’s worth taking a look at MDT’s previous-quarter performance first.

Impressive Surprise History

The company posted adjusted earnings per share (EPS) of $1.30 in the last reported quarter, which topped the Zacks Consensus Estimate by 3.17%. Medtronic beat earnings estimates in each of the trailing four quarters, the average surprise being 4.46%.

Q4 Estimates Imply a Decline

Despite a bright surprise history, the to-be-reported quarter’s estimates are showing a year-over-year decline. The Zacks Consensus Estimate for Medtronic’s fourth-quarter fiscal 2024 earnings indicates a 7.6% fall from the year-ago period figure to $1.45, while revenues are estimated at $8.44 billion, a 1.3% decrease year over year. However, the company topped both the consensus EPS and revenue estimates in each of the trailing four quarters.

Mixed Trend Ahead of Q4 Earnings

Since the past several quarters, Medtronic’s earnings growth has been held back by headwinds like inflation and currency impacts. Its last reported third-quarter fiscal 2024 EPS included an 8% unfavorable impact from foreign currency translation. Like its peers, the impact of the present geopolitical situation, including sanctions and other measures being imposed in response to the Russia-Ukraine conflict, may have impacts on its revenue and overall performance.

Despite these challenges, Medtronic has consistently showcased the resilience of its underlying business fundamentals, delivering mid-single-digit organic revenue growth for several quarters in a row. While its recent product launches are driving growth across multiple businesses, a swift pace of several compelling product approvals promises to continue to deliver reliable growth in the years to come.

Particularly, the company’s Cranial and Spinal Technologies division is expected to see strong growth in fiscal Q4, banking on the increasing adoption of AiBLE, Medtronic’s spine technology ecosystem. Mazor robotic systems with impressive double-digit unit growth are fast emerging as a key indicator for future growth in this business. This should also be reflected in the to-be-reported quarter’s results.

In cardiac pacing, sales of the Micra leadless pacemaker franchise may have surged, too, driven by the launch of the company’s next-generation Micra AV2 and VR2 devices in the United States. Medtronic’s third quarter also marked a return to growth for its Diabetes unit in the United States, with the global adoption of the MiniMed 780G system driving performance. This trend is also likely to have continued in the fiscal fourth quarter.

Our Model Remains Inconclusive

Our proven model does not conclusively predict an earnings beat for Medtronic this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. However, that’s not the case here.

While MDT currently carries a Zacks Rank of 4 (Sell), it has an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Bigger Picture

In recent years, the company has undertaken some foundational changes to the organization, including streamlining the operating model, improving the global operations, supply chain and quality and bringing in expertise from outside the industry. It is actively allocating capital to fast-growth MedTech markets and fueling innovative technologies in areas like robotics, AI and closed-loop systems that ensure its growth over the next decade.

Medtronic’s revenues have improved and become more durable from implementing a performance-driven culture and changing incentives underlying the new product approvals in major markets. With a top priority placed on restoring the company’s earnings power, these actions are expected to eventually result in better-leveraged earnings growth through margin stabilization and improvement. 

Medtronic’s highest growth opportunities, comprising 20% of its revenue today, are in markets that are large and growing faster than the overall company. For example, in Cardiac Ablation, it has significantly invested in the Electrophysiology arm to expand its share in the attractive $8 billion-plus market.

Further, in Diabetes, Medtronic’s MiniMed 780G system recently gained a CE Mark for use with the Simplera Sync sensor and is expected for FDA submission in the first half of this calendar year. Within Structural Heart, the new Evolut FX system favorably positions the company in the $6 billion-plus TAVR (transcatheter aortic valve replacement) market. In March 2024, the Evolut FX+ TAVR system gained the FDA’s approval for the treatment of symptomatic severe aortic stenosis.

MDT Underperforms the Industry & Leads to Cheap Valuation

In the past year, the stock has lost 7% of its value compared with the industry’s decline of 2.5%.

Zacks Investment Research
Image Source: Zacks Investment Research

If we look at the value components, MDT has a Value Score of B at present.

This is evident from the Price/Earnings ratio. MDT shares currently trade at 15.13X forward earnings, well off its five-year high of 30.08X and below the median of 17.89X. The stock is also trading significantly below the industry’s 20.60X.

Price-to-Earnings Forward Twelve Months (F12M)

Zacks Investment Research
Image Source: Zacks Investment Research

2024 Estimates Revision Trend

The consensus estimate for Medtronic’s 2024 EPS has remained unchanged at $5.20 for the past 90 days and indicates a 1.7% decline from the last fiscal year. For fiscal 2025, the consensus EPS estimate indicates a 5% year-over-year improvement.

To Conclude

While Medtronic holds immense potential for long-term growth, given its momentum, ongoing comprehensive transformation, breakthrough innovations and exposure to strong secular growth markets, the company battles significant headwinds from macroeconomic issues and rising expenses, which can significantly dent its bottom-line growth. For now, it might be prudent for investors to avoid buying the stock and continue monitoring MDT’s performance for a better entry point.

Stocks to Consider

Here are some medical stocks worth considering:

Veracyte’s (VCYT - Free Report) revenues of $96.8 million in the first quarter of 2024 surpassed the Zacks Consensus Estimate by 3.3%. The stock presently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

VCYT has an expected earnings growth rate of 71.6% for 2024. The company surpassed earnings in each of the trailing four quarters, the average being 59.65%.

Hims & Hers Health (HIMS - Free Report) reported revenues of $278.2 million in the first quarter of 2024, which beat the Zacks Consensus Estimate by 2.8%. Currently, it sports a Zacks Rank #1.

HIMS’ earnings are expected to surge 236.4% in 2024 compared with the industry’s 19.3% growth. In the trailing four quarters, the company has an average earnings surprise of 79.17%. 

BellRing Brands (BRBR - Free Report) reported revenues of $494.6 million in the second quarter of fiscal 2024, which beat the Zacks Consensus Estimate by 5.9%. The stock sports a Zacks Rank #1 at present.

BRBR has an expected fiscal 2024 earnings growth rate of 32.6% compared to the industry’s 18.1%. In the trailing four quarters, the company has an average earnings surprise of 12.84%. 

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.

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