Yahoo Finance Here's Why Investors Should Retain Medtronic (MDT) Stock
Medtronic plc MDT is gaining from continued recovery from pandemic-led impact. Strong growth momentum observed in international diabetes markets buoys optimism. The increasing market share gains across several businesses seem encouraging too. However, tough competition and macroeconomic woes raise apprehension.
In the past year, the Zacks Rank #3 (Hold) stock lost 18.6% compared with a 26.9% fall of the industry and a 4.6% decline of the S&P 500.
The renowned medical-device company has a market capitalization of $137.03 billion. Its earnings surpassed estimates in the trailing four quarters delivering an average surprise of 3.9%.
The company’s projected long-term earnings growth of 7.6% compares with the industry’s growth projection of 16.4% and the S&P 500’s estimated 10.7% growth.
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Let’s delve deeper.
Factors At Play
Market Share Gain Continues: In the fiscal third quarter, about 60% of Medtronic’s businesses won shares. Within the Cardiovascular portfolio, the company gained over 1.5 points of share in cardiac rhythm management. Within the Medical Surgical portfolio, Medtronic gained a share in GI, driven by momentum from the recently-launched Emprint HP Generator and Beacon endoscopic ultrasound franchise. Within the Neuroscience portfolio, the company increased its market share in Cranial, Spinal technologies.
The company also won about a point of share across the Peripheral Vascular Health and Cardiac Surgery businesses in the quarter under review.
Business Recovery Continues: Since the start of fiscal 2022, Medtronic reported strong recovery and ability to return to growth. The upside can be attributed to recovery from the pandemic and a strong new product flow that Medtronic is bringing to the market over this period. The increasing cadence of tuck-in M&As and implementation of a new operating model should add to the recovery momentum.
Medtronic expects to be back to pre-COVID levels in most of its markets before the end of the fiscal fourth quarter.
Diabetes Arm Prospects Bright: In the fiscal third quarter, Medtronic recognized strong growth momentum across diabetes markets internationally. The company launched the 770G in Japan in Jan 2022, making it the first hybrid closed loop system available in the country. In Europe, the company continued to see success and strong adoption of its 780G with the Guardian 4 sensor.
For the U.S. diabetes market, Medtronic remains optimistic about the U.S. Centers for Medicare & Medicaid Services (CMS) new rule to increase Medicare coverage for all continuous glucose monitors (CGMs). The expanded Medicare coverage includes CGMs that can be integrated with Medtronic insulin pumps. This new rule is expected to take effect for Medicare patients from February-end.
Downsides
Forex Headwinds: Of late, unfavorable currency movements have been a major dampener for Medtronic. The company anticipates its fourth-quarter revenues to be negatively impacted by approximately $185 million from adverse currency translation.
Competitive Landscape: The presence of a large number of players has made the medical devices market highly competitive. Medtronic earns most revenues from CRDM, Spinal and Cardio Vascular segments, wherein it faces significant competition from notable MedTech bigwigs.
Economic Uncertainty: Macroeconomic conditions in many developed countries have reduced healthcare budgets and increased pressure on utilization. This leads to fewer procedures, a trend that is expected to continue in the near future and affect revenue growth.
Estimate Trend
In the past 30 days, the Zacks Consensus Estimate for Medtronic’s earnings for 2022 has moved down to $5.66.
The Zacks Consensus Estimate for fiscal 2022 revenues is pegged at $32.03 billion, suggesting a 6.4% rise from the fiscal 2021 comparable figure.
Key Picks
A few better-ranked stocks in the broader medical space are AMN Healthcare Services, Inc. AMN, Medpace Holdings, Inc. MEDP and UnitedHealth Group Incorporated UNH.
AMN Healthcare has a long-term earnings growth rate of 1.1%. The company surpassed earnings estimates in the trailing four quarters, delivering a surprise of 15.6%, on average. It currently flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
AMN Healthcare has outperformed its industry in the past year. AMN has declined 4.1% versus the industry’s 64.1% fall.
Medpace has a historical growth rate of 27.3%. Medpace’s earnings surpassed estimates in the trailing four quarters, the average surprise being 17.1%. It currently has a Zacks Rank #2 (Buy).
Medpace has outperformed its industry in the past year. MEDP has declined 19.1% against the industry’s 64.1% fall.
UnitedHealth has an estimated long-term growth rate of 14.8%. UnitedHealth’s earnings surpassed estimates in the trailing four quarters, the average surprise being 3.7%. It currently carries a Zacks Rank #2.
UnitedHealth has outperformed the industry over the past year. UNH has gained 16.8% compared with 14.5% industry growth in the said period.
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