Medtronic (NYSE: MDT) stock is expected to release its third quarter tax results on Tuesday, February 23. We expect Medtronic to likely post online revenue and earnings above consensus estimates. Revenue growth is expected to be driven by increased demand for medical devices with a rebound in the volume of elective surgeries.
Our forecast indicates that Medtronic’s valuation is around $ 128 per share, which is 8% above the current market price of around $ 118. Watch our interactive dashboard analysis at Medtronic Pre-Earnings: What to Expect in Q3? for more details.
(1) Expected turnover higher than the consensus estimate
Trefis estimates Medtronic’s total revenue in the third quarter of fiscal 2021 to be around $ 7.8 billion, in line with consensus estimates. While sales of medical devices have been hit hard due to the Covid pandemic, improving demand with the resumption of elective surgeries likely helped the company navigate well in the quarter. While the Diabetes, Cardiac & Vascular Group and Restorative Therapies Group segments combined were down 4% year-on-year to $ 5.4 billion in the second quarter, revenue from the Minimally Invasive Therapies Group segment increased by 7 % to $ 2.3 billion, resulting in an overall sales decline of less than 1% in the second quarter of fiscal 2021. The company is expected to experience an increase in volume, which will be offset by lower prices, particularly for drug-eluting stents in China due to centralized wholesale purchasing, which resulted in a 90% drop in the stent price in China. Note that global emerging markets account for 16% of the company’s total sales. Our Medtronic revenue dashboard provides more details on the revenue breakdown by segment.
2) EPS likely to be higher than consensus estimates
Medtronic’s third quarter 2021 earnings per share are expected to be $ 1.20 per Trefis analysis, 4% above the consensus estimate of $ 1.15. Medtronic’s Q2 non-GAAP net income of $ 1.4 billion reflects a 22% decline from its $ 1.8 billion profit in the prior year quarter, due to lower revenues as well as a 500 basis point contraction in net margins, due to the pandemic, greater investment in R&D, as well as higher taxes. For the full year 2021, we forecast a 7% year-on-year decline in EPS to $ 4.30, due to squeezing margins.
(3) Estimate of the share price above the current market price
According to our Medtronic assessment, with an EPS estimate of around $ 4.30 and a P / E multiple of 30x in fiscal 2021, that translates to a price of $ 128, or 8% above. from the current market price of about $ 115.
While the coronavirus outbreak has had a significant impact on Medtronic’s business in recent quarters, due to the postponement of elective surgeries, we believe demand for medical devices will rebound as the spread of the virus diminishes.
Note: P / E multiples are based on the stock price at the end of the year and the reported (or expected) adjusted earnings for the full year
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