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Is a Surprise in Store for Medtronic (MDT) in Q2 Earnings?

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Ireland-based medical device major Medtronic plc (MDT - Free Report) is slated to report second-quarter fiscal 2017 earnings on Nov 22, before the opening bell.

Last quarter, the company posted earnings of $1.03 per share, surpassing the Zacks Consensus Estimate by 2 cents. In fact, Medtronic’s earnings have outpaced the Zacks Consensus Estimate in three of the past four quarters, with an average beat of 1.44%. Let’s see how things are shaping up prior to this announcement. 

Factors at Play

Despite the strong foreign exchange headwinds, the company started off fiscal 2017 on a strong note. Revenues increased over 5% at CER. Also, adjusted EPS was up 1% year over year. Taking the current foreign exchange scenario into consideration, we expect this trend to continue in the fiscal second quarter as well.

MEDTRONIC Price and EPS Surprise


MEDTRONIC Price and EPS Surprise | MEDTRONIC Quote

Earlier, Medtronic announced the reiteration of the fiscal 2017 revenue and EPS guidance for the second quarter. Management anticipates revenue growth in the range of 5% to 6% at constant currency, constant week (CCCW) basis while adjusted diluted EPS is projected in the band of $4.60−$4.70, representing growth of 12%−16% on a CCCW basis.

Notably, there have been multiple developments which should get reflected in Medtronic’s yet-to-be-reported quarter results. Under the Cardiac and vascular group, Medtronic received FDA approval for its IN.PACT Admiral drug-coated balloon, MRI Scan-Compatible Cardiac Devices and MRI CRT-D Device.  Under the Diabetes Group, the company gained FDA approval for its Enlite Sensor and MiniMed 670G system for diabetic care. Within the Minimally Invasive Technologies Group, Medtronic received FDA approval for StealthStation Cranial Software to support deep brain stimulation (DBS) lead placement.

In the first quarter, under Restorative Therapies Group, Medtronic’s core Spine revenues grew in line with the market with mid single-digit growth in the U.S. offsetting an international decline. Recently, the FDA granted extended indication for Solitaire device as an initial therapy for acute ischemic strokes (AIS) in patients. Medtronic also launched comprehensive ophthalmic solutions for joint surgery.

We are optimistic about the company’s balanced growth performance across all business groups of Medtronic and expect the same to be reflected in the second quarter itself. We also expect management to witness strong share gains from the flow of recent product launches, which should also get reflected in the second-quarter performance.

However, the company’s outlook on the impact of currency movement continues to pose a threat. According to Medtronic, negative impact from foreign currency translation in the second quarter is expected at around $275–$325 million based on current exchange rates on revenues. Macroeconomic conditions, regulatory issues and stiff competition also add to our concerns.

Earnings Whispers

Our proven model does not conclusively show that Medtronic is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP: Medtronic has an Earnings ESP of 0.00%. That is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at $1.11. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Medtronic has a Zacks Rank #3 which increases the predictive power of ESP. However, a 0.00% ESP makes surprise prediction difficult.

Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some companies you may want to consider as our model shows these have the right combination of elements to post an earnings beat this quarter:

Advanced Accelerator Applications S.A. has an Earnings ESP of +55.6% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Burlington Stores, Inc. (BURL - Free Report) has an Earnings ESP of +6.06% and a Zacks Rank #2.

Canadian Solar Inc. (CSIQ - Free Report) has an Earnings ESP of +144.8% and a Zacks Rank #3.

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