Last week saw the newest quarterly earnings release from Medtronic plc (NYSE:MDT), an important milestone in the company's journey to build a stronger business. It looks like a credible result overall - although revenues of US$7.7b were in line with what analysts predicted, Medtronic surprised by delivering a profit of US$1.01 per share, a notable 17% above expectations. Following the result, analysts have updated their earnings model, and it would be good to know whether they think there's been a strong change in the company's prospects, or if it's business as usual. We thought readers would find it interesting to see analysts' latest post-earnings forecasts for next year.
Following last week's earnings report, Medtronic's 23 analysts are forecasting 2020 revenues to be US$31.5b, approximately in line with the last 12 months. Earnings per share are expected to jump 20% to US$4.26. Before this earnings report, analysts had been forecasting revenues of US$31.5b and earnings per share (EPS) of US$4.04 in 2020. Analysts seem to have become more bullish on the business, judging by their new earnings per share estimates.
The consensus price target was unchanged at US$122, implying that the improved earnings outlook is not expected to have a long term impact on value creation for shareholders. That's not the only conclusion we can draw from this data however, as some investors also like to consider the spread in estimates when evaluating analyst price targets. The most optimistic Medtronic analyst has a price target of US$134 per share, while the most pessimistic values it at US$110. The narrow spread of estimates could suggest that the business' future is relatively easy to value, or that analysts have a clear view on its prospects.
Further, we can compare these estimates to past performance, and see how Medtronic forecasts compare to the wider market's forecast performance. We would highlight that Medtronic's revenue growth is expected to slow, with forecast 2.0% increase next year well below the historical 8.2%p.a. growth over the last five years. Compare this against other companies (with analyst forecasts) in the market, which are in aggregate expected to see revenue growth of 8.2% next year. So it's pretty clear that, while revenue growth is expected to slow down, analysts still expect the wider market to grow faster than Medtronic.
The Bottom Line
The biggest takeaway for us from these new estimates is that the consensus upgraded its earnings per share estimates, showing a clear improvement in sentiment around Medtronic's earnings potential next year. On the plus side, there were no major changes to revenue estimates; although analyst forecasts imply revenues will perform worse than the wider market. There was no real change to the consensus price target, suggesting that the intrinsic value of the business has not undergone any major changes with the latest estimates.
Still, the long-term prospects of the business are much more relevant than next year's earnings. We have estimates - from multiple Medtronic analysts - going out to 2024, and you can see them free on our platform here.
You can also view our analysis of Medtronic's balance sheet, and whether we think Medtronic is carrying too much debt, for free on our platform here.
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