Earnings Preview: Medtronic - Analyst Blog
February 17 2012 - 9:15AM
Zacks
Leading medical devices company
Medtronic (MDT) is scheduled to report its third
quarter of fiscal 2012 results before the market opens on Tuesday,
February 21, 2012. The company is expected to earn an EPS of 84
cents on revenues of $4.029 billion during the quarter, according
to the Zacks Consensus Estimate.
Medtronic exceeded its expectations
in two of the last four quarters. The four-quarter positive
surprise of 0.94% implies that the company has surpassed the Zacks
Consensus Estimate by this magnitude over the last four
quarters.
Previous Quarter
Highlights
Medtronic reported an adjusted EPS
of 84 cents in the second quarter of fiscal 2012, a couple of cents
ahead of the Zacks Consensus Estimate and the year-ago quarter.
Revenues were $4.132 billion in the quarter, up 6% year over year
(up 3% at constant exchange rates or CER) and higher than the Zacks
Consensus Estimate of $4.066 billion.
Medtronic’s seven divisions – CRDM,
Spinal, CardioVascular, Neuromodulation, Diabetes, Surgical
Technologies and Physio-Control – generated corresponding sales of
$1.268 billion (up 2% year over year but down 2% at CER), $839
million (down 1% or down 3% at CER), $830 million (up 12% or 8% at
CER), $421 million (up 9% or 6% at CER), $367 million (up 13% or
10% at CER), $298 million (up 22% or 20% at CER) and $109 million
(flat or down 3% at CER). The company has decided to sell its
Physio-Control business to Bain Capital for $487 million in
cash.
Agreement of Estimate
Revisions
Estimate revision trends among the
analysts for the third quarter and the fiscal have been on the
downside. Over the last 30 days, out of 21 analysts covering the
stock, 3 lowered their estimates for the quarter while only 1 moved
in the opposite direction. A similar situation applies for the
fiscal with 2 downward revisions over the past month and none
raising their estimates.
The decline in estimates reflects
the issues troubling the company’s core businesses and the current
economic uncertainties. The biggest segment at Medtronic, CRDMhas
been affected by physician reaction to a study result published by
the Journal of the American Medical Association regarding
evidence-based guidelines for ICD implants and US Department of
Justice’s investigation into hospitals' ICD implants.
This situation is taking its toll
across the industry as reflected in the recently reported results
of Medtronic’s peers, Boston Scientific (BSX) and
St Jude Medical (STJ). Moreover, the Spinal
segment is also witnessing several headwinds such as pricing
pressure and decline in procedure volume.
We also expect an update regarding
the US trial of Medtronic’s CoreValve system. This is significant
since Edwards Lifesciences (EW) has already
received approval from the US Food and Drug Administration for its
Sapien transcatheter heart valve (“THV”). Over and above,
Medtronic’s prominent presence in the European market, which is
shrouded in macroeconomic challenges, might affect the company’s
sales growth.
Although recent product launches in
the CRDM business will provide some incremental sales, Medtronic’s
top line would continue to remain under pressure. This might force
the company to revise its guidance for fiscal 2012. The current
Zacks Consensus Estimate for the fiscal stands at an EPS of $3.45
on revenues of $16.534 billion. However, the continuous share
buyback program and restructuring initiatives undertaken by the
company might be a cushion to the bottom line.
Magnitude of Estimate
Revisions
Given nominal estimate revisions
from the analyst community, though tinged with doubt, over the past
30-day period, the consensus estimate for the current quarter
dropped by a penny to 84 cents. However, the consensus estimate for
fiscal 2012 remained static at $3.45 over the past month.
Recommendation
Having witnessed several headwinds
in its two biggest segments – CRDM and Spinal – Medtronic is trying
every means to revive growth. This includes penetration of
international markets, portfolio expansion and restructuring
initiatives, which should benefit the company over the long term.
Moreover, acquisitions done over the past few years are
contributing to total revenues, a positive trend that is expected
to continue. Meanwhile, Medtronic has increased its focus on the
emerging markets that have been garnering significant growth.
Despite the measures, economic
uncertainty is impacting procedure volume. Longer term, we have a
Neutral recommendation on Medtronic. The stock retains a Zacks #3
Rank (“Hold”) in the short term.
BOSTON SCIENTIF (BSX): Free Stock Analysis Report
EDWARDS LIFESCI (EW): Free Stock Analysis Report
MEDTRONIC (MDT): Free Stock Analysis Report
ST JUDE MEDICAL (STJ): Free Stock Analysis Report
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