Is An Earnings Beat In The Cards For Medtronic Stock?

Medtronic (NYSE: MDT) is scheduled to report its fiscal 2025 first-quarter results on Tuesday, August 20 (fiscal year ends in April). We expect Medtronic stock to trade higher post-Q1 results announcement, with its revenues and earnings expected to be slightly above the street estimates. The company should continue to benefit from an increased procedures volume and expansion of its new products. Our interactive dashboard analysis of Medtronic’s Earnings Preview has more details on the company’s revenues and earnings for the quarter.  So, what are some trends likely to drive Medtronic’s results, and how has the company’s stock performed?

Firstly, let us look at Medtronic’s stock performance in recent years. MDT stock has faced a notable decline of 25% from levels of $105 in early January 2021 to around $80 now, vs. an increase of about 45% for the S&P 500 over this period. Notably, MDT stock has underperformed the broader market in each of the last three years. Returns for the stock were -10% in 2021, -23% in 2022, and 10% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that MDT underperformed the S&P in 2021, 2022, and 2023.

In fact, consistently beating the S&P 500 — in good times and bad — has been difficult over recent years for individual stocks; for heavyweights in the Health Care sector including UNH, and JNJ, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics.

Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could MDT face a similar situation as it did in 2021, 2022, and 2023 and underperform the S&P over the next 12 months — or will it see a recovery? From a valuation perspective, we think it has some room for growth. We estimate Medtronic’s Valuation to be $93 per share, reflecting an upside of around 15%. MDT stock currently trades at 15x expected earnings of $5.46 per share in 2025, slightly lower than its 16x average P/E over the last three years.

Looking at the previous quarter, Medtronic’s revenue of $8.6 billion reflected a 0.5% y-o-y rise. A 10.9% growth in Diabetes, 5.6% rise in Neuroscience, and a 3.5% growth in Medical Surgical sales was mostly offset by a 5.2% decline in Cardiovascular segment sales. However, on an organic basis, Cardiovascular sales were up 4%. The company’s earnings of $1.46 on a per share and adjusted basis were down 7% year-over-year.

Coming to the latest quarter, we believe that Diabetes will see strong growth, led by its MiniMed 780G system. It should also see market share gains for its Micra AV pacemaker. On the reported basis, the company may continue to see tepid top-line growth amid forex translation losses. Medtronic expects its 2025 organic sales to rise between 4% and 5% from its $32.4 billion sales in fiscal 2024. Its bottom line is expected to be in the range of $5.40 to $5.50 on an adjusted basis.

While MDT stock looks like it has some room for growth, it is helpful to see how Medtronic’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

[1] Returns as of 8/15/2024
[2] Cumulative total returns since the end of 2016

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