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What's in the Cards for Medtronic (MDT) in Q3 Earnings?

Medtronic plc MDT is scheduled to report third-quarter fiscal 2023 results on Feb 21, before the opening bell.

In the last reported quarter, the company’s earnings exceeded the Zacks Consensus Estimate by 1.56%. Medtronic surpassed estimates in three of the trailing four quarters and missed in one, the average surprise being 0.16%.

Let’s see how things have shaped up prior to this announcement.

Factors at Play

Medtronic has been witnessing an adverse trend of procedure volume across its core business over the past few quarters, impacted by the choppy macroeconomic scenario globally in the form of supply chain disruption, a severe shortage of health professional labor and record level of inflationary pressure. The full impact of inflation with increased freight expense is expected to have been realized in Q3 of fiscal 2023.

Considering how inflation of raw materials and freight has become severe over the past quarter, Medtronic had earlier stated that it would prioritize R&D investments for future growth. This might have once again caused margin pressure in fiscal Q3.

Medtronic PLC Price and EPS Surprise

Medtronic PLC Price and EPS Surprise
Medtronic PLC Price and EPS Surprise

Medtronic PLC price-eps-surprise | Medtronic PLC Quote

Added to this, severe currency headwinds are expected to have affected profitability further. In this regard, on the fiscal Q2 earnings call, the company noted that the fiscal third quarter would have a currency headwind between $460 million and $510 million on revenues.

The company noted that it is driving significant expense reduction to help offset lower revenues and continued inflation impact. Amid the macro-environmental headwinds in the form of inflation, China VBP, softer procedure volumes in certain markets and currency, the company claims to be laser-focused on driving operational and expense efficiencies.

Overall, in the third quarter, Medtronic expects organic revenue growth in the range of 2.5% to 3%, implying strong sequential acceleration, driven by improved product availability based on new launches. The fiscal third quarter adjusted EPS is expected to be in the range of $1.25 to $1.27, including a currency headwind of about 5 cents.

The company’s Cardiovascular portfolio is expected to gain 4.75% to 5.25% organically on the continued rollout of Evolut FX and LINQ II. In cardiac rhythm management, the pacing business is expected to have generated strong sales.

In the neuroscience portfolio, the company is expected to have an increased market share in Cranial and Spinal technologies. Demand for the company’s new spine implants is expected to have contributed to the growth. The strong adoption of the spine technology ecosystem, or Aible, AI-enabled surgical planning platform, the launch of the Catalyft expandable titanium interbody system and the rollout of enabling technologies are expected to have contributed to Q3 growth. The Mazor robotics system and StealthStation navigation system, particularly, are expected to have performed strongly in the to-be-reported quarter.

The company earlier expected its neuroscience revenues to grow in the range of 5.75% to 6.25% organically in Q3.

In Medical Surgical and surgical robotics, Medtronic remains focused on the limited market release of the Hugo robot while it scales production. The company recently completed Hugo installations in several geographies like Denmark, France and Italy, which are likely to have added to the company’s Q3 top-line growth within this arm. However, according to Medtronic, given increased volume-based procurement in many of the Chinese provinces, medical surgical revenues are expected to be down 2% to 2.5% in Q3.

In Diabetes, MDT might have faced some competitive pressure in the United States, which might have impacted growth severely. However, the company is expected to have seen significant growth in markets outside the United States on the increasing user base of the MiniMed 780G insulin pump, combined with the Guardian 4 sensor. According to Medtronic, Diabetes is expected to decline in the low single digits on an organic basis in fiscal Q3.

Q3 Estimates

The Zacks Consensus Estimate for Medtronic’s fiscal third-quarter total revenues of $7.50 billion suggests a 3.4% decline from the prior-year reported number. The consensus mark for earnings of $1.26 per share implies an 8% drop from the year-ago reported figure.

What Our Quantitative Model Predicts

Our proven model predicts an earnings beat for Medtronic this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat.

Earnings ESP: Medtronic has an Earnings ESP of +1.47%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Medtronic currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.

Other Stocks Worth a Look

Here are a few medical stocks worth considering, as these have the right combination of elements to beat on earnings this reporting cycle.

Neogen NEOG has an Earnings ESP of +116.67% and a Zacks Rank of 2. NEOG has a long-term historical growth rate of 6.2%.Neogen is expected to release third-quarter fiscal 2023 results shortly.

Neogen’s earnings surpassed estimates in all the trailing four quarters, with the average surprise being 70.1%.

Laboratory Corporation of America Holdings or LabCorp LH currently has an Earnings ESP of +2.67% and a Zacks Rank of #2. LabCorp is expected to release fourth-quarter 2022 results on Feb 16.

LabCorp’s long-term historical earnings growth rate is estimated to be 26.1%. LabCorp’s earnings yield of 7.02% compares favorably with the industry’s 4.34%.

Penumbra, Inc. PEN has an Earnings ESP of +11.11% and sports a Zacks Rank of 1 at present. Penumbra is expected to release fourth-quarter 2022 results on Feb 23. PEN’s earnings yield of 0.4% compares favorably with the industry’s negative yield.

Penumbra’s earnings surpassed estimates in two of the trailing four quarters and missed the same in the other two, with the average surprise being 37.6%.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.

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Laboratory Corporation of America Holdings (LH) : Free Stock Analysis Report

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Penumbra, Inc. (PEN) : Free Stock Analysis Report

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