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Hurricane Maria to Hurt Medtronic in Q2, FY18 View Intact

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As a major setback to the company’s investors, Medtronic (MDT - Free Report)  recently foresees a significant impact of Hurricane Maria on second-quarter fiscal 2018 sales. Having acquired a category 5 status, Hurricane Maria has been placed among the top 10 most intense Atlantic hurricanes on record, thus hitting the company’s business in Puerto Rico quite hard.

Adding to the woes, the company has a level of manufacturing setup for all its four business groups — viz. Cardiac & Vascular Group (''CVG''), Minimally Invasive Therapies Group (''MITG''), Restorative Therapies Group (''RTG'') and Diabetes Group — in Puerto Rico. While the facilities are gradually getting operative since Oct 2, the sites are only partially active at present on power supply from back-up generators.

With considerable repairing done, the company expects the normal manufacturing process to get fully restored in the coming weeks.

Financial Impacts

Medtronic has provided a statement on the company’s financial health badly hurt by  Maria and further affecting the overall business. Notably, in line with business continuity protocols, the company is utilizing the existing inventory levels and increasing manufacturing processes in locations outside Puerto Rico for multiple products.

Medtronic projects both fiscal second-quarter 2018 revenue and adjusted net earnings to show the impact to the extent of $250 million. More specifically, the MITG and the RTG groups are expected to be worst hit. Notably, this quarter will close on Oct 27, 2017.

Significantly, the company forecasts some non-recurring expenses, directly related to recovery efforts in Puerto Rico, which will be excluded from adjusted earnings. However, expenses related to the effects outside Puerto Rico will be considered operating expenses.

Incidentally, Medtronic is lacks enough visibility about the impact of Maria, post the second quarter. However, forecasting a strong new product demand, particularly in the CVG and Diabetes Group, the company continues to expect mid-single digit revenue growth (on a comparable, constant currency basis) in the second half of fiscal 2018.

Despite the Maria-related impact, the company reaffirmed the fiscal second quarter and full-year fiscal 2018 guidances.

Among the company’s many supports toward disaster management, the Medtronic Foundation has directed $1 million for disaster relief to date and is matching employee contributions to authorized agencies.

Price Performance

 

Over the last three months, Medtronic has been observed to underperform the broader industry.  The stock has declined 8.5% versus the broader industry’s  4.7% gain during this period. Sad but true, this gloomy scenario is likely to continue per the company’s latest financial prediction due to Maria.

Zacks Rank & Key Picks

Medtronic currently carries a Zacks Rank #4 (Sell).

A few better-ranked stocks in the medical sector are Orthofix International N.V. (OFIX - Free Report) , Thermo Fisher Scientific Inc. (TMO - Free Report) and IDEXX Laboratories, Inc. (IDXX - Free Report) . While Orthofix International sports a Zacks Rank #1 (Strong Buy), IDEXX Laboratories and Thermo Fisher carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Orthofix International has a long-term expected earnings growth rate of 11.8%. The stock has rallied roughly 39% over the last six months.

Thermo Fisher has a long-term expected earnings growth rate of 16.3%. The stock has gained 21.4% last year.

IDEXX Laboratories has a long-term expected earnings growth rate of 19.8%. The stock has surged 35.8% last year.

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