What To Expect From Medtronic’s Q4?

Medtronic (NYSE: MDT) is scheduled to report its fiscal 2023 fourth-quarter results on Thursday, May 25. We expect Medtronic
MDT
stock to trade sideways post-Q4 results announcement, with its revenues and earnings expected to align with the street estimates. The company should continue to benefit from its new products and a better pricing environment. Although we expect Medtronic to report in-line results, we believe its stock has little room for growth, as discussed below. Our interactive dashboard analysis of Medtronic’s Earnings Preview has additional details.

(1) Better Pricing To Aid Sales

• Trefis estimates Medtronic’s Q4 fiscal 2023 total revenues to be around $8.2 billion, reflecting a low single-digit y-o-y rise but marginally below the $8.3 billion consensus estimate.
• The company should benefit from its new products, including the Micra AV pacemaker and Onyx Frontier drug-eluting stent. It should also see continued strength in cardiac products.
• However, the Medical Surgical segment may see lower sales due to a continued decline in ventilator demand.
• Forex headwinds may also weigh on the overall top-line growth. Medtronic expects around 4.5% to 5% organic revenue growth in Q4.
• Looking at the last quarter, Medtronic’s revenue was flat y-o-y to $7.7 billion, as a 5% rise in the Neuroscience portfolio and a 1% gain in the Cardiovascular portfolio was offset by a 7% decline in the Medical Surgical segment.
• Our dashboard on Medtronic Revenues provides more details on the company’s segments.

(2) EPS expected to align with the consensus estimates

• Medtronic’s Q4 fiscal 2023 earnings per share is expected to be $1.56 per Trefis analysis, in line with the consensus estimate.
• Medtronic’s net income of $1.7 billion in Q3 reflected a 6% fall y-o-y, as the company’s adjusted operating margins fell over 200 bps to 25.9%.
• Looking at the full fiscal 2023, we expect EPS to be lower at $5.29, compared to the $5.55 seen in fiscal 2022.

(3) MDT stock has little room for growth

• We estimate Medtronic’s Valuation to be $97 per share, reflecting only an 8% upside from its current market price of around $90.
• This represents a little over an 18x P/E multiple, aligning with the levels seen in late 2021.
• If the company reports upbeat Q4 results and the 2024 guidance is better than the street estimates, it is likely that the P/E multiple will be revised upward, resulting in higher levels for MDT stock.

While MDT stock may see higher levels, the Covid-19 crisis has created many pricing discontinuities, which can offer attractive trading opportunities. For example, you’ll be surprised at how counter-intuitive the stock valuation is for Becton Dickinson vs. Amerco.

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