Medtronic plc
MDT
has been driving market share gains across three of its largest businesses. The company ended the second quarter of fiscal 2022 with better-than-expected earnings. Robust performances in the international markets buoy optimism. Strength in the Diabetes arm is an added advantage. However, pandemic-led headwinds and foreign exchange woes do not bode well for the stock.
Over the past year, the Zacks Rank #3 (Hold) stock has declined 11.4% against the 8.9% fall of the
industry
and a 24.4% rise of the S&P 500.
The renowned medical-device company has a market capitalization of $136.68 billion. Its earnings for second-quarter fiscal 2022 surpassed the Zacks Consensus Estimate by 3.1%.
The company’s projected long-term earnings growth of 6.7% compares with the industry’s growth projection of 17.7% and the S&P 500’s estimated 11.6% growth.
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Let’s delve deeper.
Factors At Play
Diabetes Arm Prospects Bright:
In the fiscal second quarter, Medtronic recognized strong growth momentum in the diabetes market internationally. On an organic basis, Diabetes revenues increased 1% in the reported quarter. Durable insulin pumps grew in the low-20s, including high-teens growth in the United States and low-20s growth in international markets on the continued launches of the MiniMed 770G and MiniMed 780G systems, respectively. Sales of continuous glucose monitoring products increased in the low-single digits.
Market Share Gain Continues:
We are upbeat about Medtronic’s market share gains across its cardiac rhythm, surgical innovations and spine businesses amid the ongoing COVID-induced staffing problem and procedure volume debacle. In the fiscal second quarter, the company extended category leadership within the CRM business, adding over a point of share year over year, driven by its differentiated Micra family of pacemakers, Cobalt and Crome high power devices and TYRX antibacterial envelopes. The company outperformed its peers with robust performances in endo stapling and sutures and Signia powered stapling system in surgical innovations. In Cranial & Spinal Technologies, the company is winning share and launching new spine implants.
Impressive Q2 Results:
Medtronic’s fiscal second-quarter earnings surpassed the Zacks Consensus Estimate. While the COVID-19 resurgence headwind entangled the U.S. market, many of the company’s international-markets performances were robust. The company delivered 6% revenue growth outside the United States, including mid-teens growth in emerging markets. The emerging market saw 9% growth from the pre-pandemic levels in the year-ago quarter. Organic growth in the Cardiovascular, Neuroscience and Diabetes segments buoy optimism. The quarter’s gross and operating margins showed improvements on a year-over-year basis.
Downsides
Pandemic Hampers Emerging Market Growth:
Medtronic noted that while it expects the impact from the COVID-19 resurgence to diminish, the effect of the ongoing pandemic on the businesses in emerging markets is a challenge to predict. This is due to the variable spread of the virus in regions like the United States, Europe, and some parts of Asia.
Exposure to Currency Movement:
With Medtronic recording a significant portion of its sales from the international market, it is highly exposed to currency fluctuations. During the fiscal second-quarter earnings call, the company noted that it has to cut its fiscal 2022 sales guidance on the reduced positive impact of foreign exchange in the range of $0 to $50 million compared with the earlier expectation of a positive impact of $100 to $200 million.
Competitive Landscape:
The presence of a large number of players has made the medical devices market highly competitive. Medtronic earns the majority of revenues from the CRDM, Spinal and Cardio Vascular segments, where it faces significant rivalry from notable MedTech players.
Estimate Trend
Over the past 30 days, the Zacks Consensus Estimate for Medtronic’s 2022 earnings has moved 0.2% north to $5.70.
The Zacks Consensus Estimate for third-quarter fiscal 2022 revenues is pegged at $7.97 billion, suggesting a 2.5% rise from the year-ago reported number.
Key Picks
A few better-ranked stocks in the broader medical space are
Apollo Endosurgery, Inc.
APEN
,
McKesson Corporation
MCK
and
Thermo Fisher Scientific Inc.
TMO
, each carrying a Zacks Rank #2 (Buy). You can see
the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Apollo Endosurgery has a long-term earnings growth rate of 7%. The company surpassed earnings estimates in the trailing four quarters, delivering a surprise of 25.6%, on average.
Apollo Endosurgery has outperformed its industry over the past year. APEN has gained 131.4% versus the 4.8% industry growth.
McKesson has a long-term earnings growth rate of 9%. The company surpassed earnings estimates in the trailing four quarters, delivering a surprise of 19.9%, on average.
McKesson has outperformed its industry over the past year. MCK has gained 38.8% versus the 12.4% industry rise.
Thermo Fisher has a long-term earnings growth rate of 14%. The company surpassed earnings estimates in the trailing four quarters, delivering an average surprise of 9%.
Thermo Fisher has outperformed its industry over the past year. TMO has rallied 38.7% versus the industry’s 4.8% rise.
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