MDT stock slumps to two-year low with lag in sales – is there a silver lining?

Medtronic (MDT) on Tuesday morning reported mixed earnings and weaker-than-expected organic sales growth, dragging MDT stock down.


In the fiscal second quarter, Medtronic’s adjusted earnings of $1.30 per share fell 2% year over year, but beat expectations by two cents, according to FactSet. Sales fell 3% on a strict basis, as reported, to $7.59 billion. But analysts had forecast nearly $7.7 billion.

The company also lowered its profit forecast for the year.

“Our expectations were low for the quarter, but results were still disappointing,” Edward Jones analyst John Boylan said in a report. “However, this is not where our focus is, as we believe the drivers of the issues this quarter should resolve themselves over time and most are not unique to Medtronic.”

In today’s stock market, MDT stock rose 5.3% to 77.93. Stocks hit their lowest point since March 2020.

Stock MDT: TAVR, diabetes offers bright spots

Organically, sales grew only 2% and missed Medtronic’s forecast for growth of 3% to 3.5%, Evercore ISI analyst Vijay Kumar said in a report. The main source of the decline was the activities of the medical-surgical and cardiovascular group. In both cases, sales were below expectations.

But Kumar noted that the quarter’s bright spots included Medtronic’s non-surgical method of replacing a faulty heart valve and the diabetes business. Sales of Transcatheter Aortic Heart Valve Replacement, or TAVR, devices increased by 12%. Sales of diabetes devices fell 5% on a reported basis, with a double-digit decline in the United States due to lack of new product approvals. But organic sales increased slightly by 3%.

Kumar retains his outperformance rating and 105 price target on MDT shares.

The diabetes sector is under pressure. In late 2021, the Food and Drug Administration issued a warning letter following an inspection of Medtronic’s diabetes unit. The company is still working on a next-generation continuous glucometer called Simplera and is hoping for approval of a new insulin pump dubbed the 780G.

“If the warning letter is removed, an approval of 780G and the launch of Simplera could turn this segment into high single-digit growth,” Kumar said.

Is robotic surgery the next step?

Edward Jones’ Boylan is also overseeing Medtronic’s robotics efforts with a surgical device called the Hugo. Hugo helps doctors perform certain surgeries. Orders in the markets where the robot is approved seem solid. Medtronic is working towards FDA approval.

“These developments, combined with the internal improvements we are seeing, should ultimately return Medtronic to sales and profit growth,” he said. “Having said that, the recovery took longer and with more bumps in the road than expected, but keep believing that patience will be rewarded.”

He doesn’t believe the outlook is reflected in MDT stocks today.

For the second half of its fiscal year, Medtronic expects organic sales growth of 3.5% to 4%, accelerating compared to the first half of the year. But the company has cut its full-year adjusted earnings outlook and now sees $5.25 to $5.30 per share. Three months ago, the company made adjusted earnings of $5.53 to $5.65 per share.

Follow Allison Gatlin on Twitter at @IBD_AGatlin.


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