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Will Strong RTG Arm Drive Medtronic's (MDT) Q4 Earnings?

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Medtronic plc’s MDT Restorative TherapiesGroup (“RTG”) has been on a strong growth trajectory of late, on encouraging contributions from the majority of sub-segments.

We expect this strength to reflect in the fourth quarter and fiscal 2018 results, which are scheduled to release before the opening bell on May 24.

Click here to know how the company’s overall Q4 performance is expected to be.

RTG in Focus

Medtronic’s RTG presently comprises of Spine, Brain Therapies, Specialty Therapies and Pain Therapies divisions. We note that management expects 3-4% revenue growth in RTG business in the fourth quarter of fiscal 2018. Per management, this guidance balances the ongoing strength in Pain and Brain Therapies segments with any adverse impact from the weakening spine market.

Consequently, RTG’s Zacks Consensus Estimate for revenues of $2.09 billion indicates rise of 60.8% from the year-ago quarter.

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In the last reported quarter, the segment recorded improvement in sales, driven by low-double-digit growth in Brain Therapies, mid-single-digit growth in Specialty Therapies and high-single-digit growth in Pain Therapies at CER. However, revenues from the Spine business remained flat at CER on a year-over-year basis.

Let's see how things are shaping up in these sub-segments before fourth-quarter results.

Brain Therapies: In Brain Therapies, which now includes Neurovascular and Neurosurgery businesses, the company has been witnessing major developments. In the Neurovascular business, which received solid contributions from stroke portfolio in the last reported quarter, Medtronic announced the receipt of FDA approval for the Riptide Aspiration System in January 2018. This adds a valuable tool to the company’s Acute Ischemic Stroke (AIS) product portfolio benefit of which should get reflected from the yet-to-be-reported quarter itself.

Further, in April, Medtronic announced the CE Mark receipt and launch of the Visualase MRI-Guided Laser Ablation System in Europe. Notably, the Visualase system can be used in neurosurgery procedures and provides advanced MRI-guided laser ablation technology. These developments should help the company continue to witness strength in the Brain Therapies business.

Pain Therapies: The Pain Therapies division, which now includes Pain (Spinal Cord Stimulation and Drug Pumps) and Interventional Spine businesses, contributed encouragingly to the company’s top line in third-quarter fiscal 2018. Pain Therapies witnessed growth on the solid uptake of Intellis platform for spinal-cord stimulation as well as strength in drug pumps.

In January, the company announced the receipt of FDA approval for a new clinician programmer for use with the SynchroMed II Intrathecal Drug Delivery system. Again, in April, Medtronic announced its U.S. launch of OptiSphere embolization spheres, a resorbable embolic platform, developed for embolization of hypervascular tumors.

In view of the company’s efforts to develop its Pain Therapies division,we believe that solid trend will continue to reflect in the to-be-reported quarter results as well.

Spine: Medtronic’s Spine division includes the Core Spine, BMP and Kanghui businesses. In the last reported quarter, a low-single-digit decline in Core Spine was more than offset by mid-single-digit growth in BMP at CER.

Per management, the combination of enabling technologies like imaging, navigation, powered instruments, nerve monitoring and Mazor Robotics with spine implants has spurred growth in this division.

We expect encouraging top-line contributions from the business in the to-be-reported quarter.

Zacks Rank & Stocks to Consider

Medtronic currently carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the broader medical sector are Intuitive Surgical ISRG, Illumina, Inc ILMN and Amedisys, Inc. AMED. While Intuitive Surgical and Illumina sport a Zacks Rank #1 (Strong Buy), Amedisys carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Intuitive Surgical has a long-term expected earnings growth rate of 12.1%.

Illumina has a long-term expected earnings growth rate of 20%.

Amedisys has a long-term expected earnings growth rate of 17.5%.

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