Case Study: What Credible analysts are saying on Medtronic (MDT) stock
Key Points
Medtronic shares fell by 4.3% this week. On a year-to-date basis, MDT is now down by 25.4%. This compares poorly to the S&P 500, which is down by approximately 16% during 2022 thus far.
Supply chain issues in the semiconductor industry are hurting sales growth and product margins for large cap companies in the medical device segment of the healthcare sector
Medtronic posted Q3 earnings this week, beating Wall Street’s expectations on the bottom line, but missing consensus estimates the top-line. MDT’s second quarter sales totaled $7.59 billion, which missed estimates by $110 million, and represented -3.3% year-over-year growth. However, Medtronic’s non-GAAP earnings-per-share came in at $1.30, which beat consensus estimates by $0.02/share, representing -2% year-over-year growth.
67% of recent articles published by credible authors focused on MDT shares offer a “Bullish” bias. 50% of credible Wall Street analysts believe shares are likely to rise in value. The average price target being applied to Medtronic shares by credible analysts is $99.33, which implies an upside potential of approximately 25% relative to Medtronic's current share price of $78.96.
From Gen Alpha, a 5-star rated Nobias author: “I believe Medtronic is a premium quality enterprise that trades at a significant discount to its historical valuations.”
Four credible Wall Street analysts: Wells Fargo analyst Larry Biegelsen, Stifel analyst Rick Wise, Citi analyst Joanne Wuensch, and Truist analyst Richard Newitter, all lowered their fair value estimates for MDT shares post-earnings.
Performance
Event & Impact
Noteworthy News:
Nobias insights
Bullish Take:
Bearish Take:
Throughout much of 2022, large cap healthcare stocks have provided investors with a safe haven from the broader market’s negative volatility. Many of the large-cap bio-pharmaceutical companies have posted positive returns on the year (during a period of time when the S&P 500 has fallen by approximately 16%).
However, the medical device segment of the healthcare sector has largely struggled due to supply chain issues associated with the semiconductors that are required to manufacture their products. Medtronic (MDT) is one such medical device name that has struggled during 2022. After falling roughly 4.3% this week, MDT shares are down by 25.4% on the year.
MDT Nov 2022
Medtronic published its fiscal second quarter results on November 22, 2022, missing Wall Street estimates on the top-line, but beating analyst expectations on the bottom-line. MDT’s second quarter sales totaled $7.59 billion, which missed estimates by $110 million, and represented -3.3% year-over-year growth. However, Medtronic’s non-GAAP earnings-per-share came in at $1.30, which beat consensus estimates by $0.02/share, representing -2% year-over-year growth.
Regarding its revenue breakdown, Medtronic’s press release stated: “Second quarter U.S. revenue of $4.069 billion represented 54% of company revenue and increased 2% as reported and 1% organic. Non-U.S. developed market revenue of $2.157 billion represented 28% of company revenue and decreased 13% as reported and increased 3% organic. Emerging Markets revenue of $1.359 billion represented 18% of company revenue and decreased 1% as reported and increased 4% organic.”
During the company’s second quarter report, MDT’s CEO,-Geoff Martha, said, "We're taking decisive actions to improve the performance of the company." Martha continued: "Slower than predicted procedure and supply recovery drove revenue below our expectations this quarter. We continue to take decisive actions to improve the overall performance of the company, including streamlining our organizational structure, strengthening our supply chain, driving a performance culture, and strategically allocating capital to support our best growth opportunities with the investments they deserve. We're seeing the benefit of these changes – along with new incentives and strong execution – in certain businesses, and we're focused on ensuring these efforts translate into improved performance across the company. Looking ahead, we're confident we have a clear path to delivering durable growth and increased shareholder value."
Medtronic also updated investors with new full-year fiscal 2023 guidance, stating: “The company expects fiscal year 2023 second half revenue growth of 3.5% to 4.0% on an organic basis, an acceleration over the first half. If foreign currency exchange rates as of the beginning of November hold, revenue growth in fiscal year 2023 would be negatively affected by approximately $1.740 billion to $1.840 billion versus the previously stated $1.4 billion to $1.5 billion impact.”
The company continued, “The company now expects fiscal year 2023 diluted non-GAAP EPS in the range of $5.25 to $5.30. EPS guidance includes an estimated 18 cent negative impact from foreign currency at rates as of the beginning November.”
Regarding these new guidance figures, Medtronic’s chief financial officer, Karen Parkhill, said: "We continue to expect organic revenue growth acceleration, with the second half growing faster than the first. However, given a slower pace of market and supply recovery, we're reducing our revenue expectations for the remainder of the year. On the bottom line, we are driving expense reductions throughout the company to help offset the lower revenue and the effects of cost inflation. We are also committed to investing appropriately for the long-term, allocating capital to our most promising growth drivers and executing tuck-in acquisitions, all designed to reach more patients and create greater value for our shareholders."
Bearish Nobias credible authors:
Since posting these results and providing the market with new forward guidance, MDT shares have fallen by approximately 4%. In response to Medtronic’s earnings report, several credible Wall Street analysts that the Nobias algorithm tracks lowered their fair value estimates for MDT shares.
Truist analyst Richard Newitter, who receives a Nobias 4-star rating, lowered his price target from $89 to $84 and maintained a “Hold” rating on shares.
Citi analyst Joanne Wuensch, who receives a Nobias 4-star rating, lowered her price target from $108 to $85 and reduced her “Buy” rating on MDT shares to “Neutral”.
Wells Fargo analyst Larry Biegelsen, who receives a Nobias 4-star rating, lowered his price target from $96 to $82 and maintained an “Equal Weight” rating on MDT shares.
And lastly, Stifel analyst Rick Wise, who receives a Nobias 4-star rating, lowered his price target on MDT shares from $105 to $90, keeping a “Buy” rating on shares.
Bullish Nobias credible authors:
Poor guidance provided during the last quarter inspired several credible Wall Street analysts to lower their price targets for MDT shares. Yet, despite these recent downgrades, the average price target being applied to MDT by credible Wall Street analysts implies upside potential that is greater than 25%.
With this strong upside potential in mind, Jonathan Block, a Seeking Alpha News Editor who is also a Nobias 4-star rated author, recently published a report which focused on the macro growth tailwinds that medical device companies are expected to benefit from during the coming decades.
Block wrote, “The global medical devices market was ~$489B in 2021, and is projected to increase to ~$496B in 2022.” “However,” he continued, “it is expected to expand to ~$719B by 2029, according to Fortune Business Insights, meaning several companies are set to benefit handsomely.”
Regarding the data from the Fortune Business Insight report, Block said, “The consulting firm sees a CAGR for the industry of 5.5% between 2022 and 2029.” Block said that increasing “prevalence of chronic disease around the world” is driving this growth trend. For instance, Block noted that the International Diabetes Foundation says that there were 537 million people with the disease in 2021 and the Foundation expects to see that figure rise to 643 million by 2030 and 783 million by 2045.
“Based on these insights,” Block wrote, “there are several companies set to benefit from an increase in demand for medical devices.” He continued, “These include the top three medical device companies based on 2021 revenue: Medtronic (NYSE:MDT), Abbott (NYSE:ABT), and Johnson & Johnson (NYSE:JNJ).”
With specific regard to Medtronic, Block said, “Although Medtronic (MDT) operates several segments, it is perhaps known for its cardiovascular portfolio. But its products in medical surgical, neuroscience, and diabetes show that the company is well-positioned to benefit in multiple device areas.”
Gen Alpha, a Nobias 5-star rated author, also highlighted a bullish outlook for Medtronic shares in a recent article titled, “Medtronic: Buy This 'A' Quality Gem On The Cheap”. Gen Alpha said, “Medtronic is a medical device giant with a presence in over 150 countries. Its broad array of products includes pacemakers, stents and insulin pumps, treating 70 various health conditions.” They continued, “MDT employs over 90K employees around the world, and in the trailing 12 months, generated $31 billion in total revenue.”
Gen Alpha touched upon Medtronic’s recent struggles, writing, “It's fair to say that the past 9 months have been challenging, as MDT has had to contend due to chip shortages that have caused disruptions on the supply side.” But, they went on to say that the extent of MDT’s sell-off in response to supply chain issues has been irrational.
Gen Alpha wrote, “I believe the market has not fully awakened to the fact that the chip shortage has greatly eased in recent months.” While MDT investors wait for a share price rebound, Gen Alpha points out that Medtronic continues to provide generous shareholder returns. They said, “Importantly, for dividend investors, MDT carries a strong A rated balance sheet. At the current price of $84.65, MDT yields a respectable 3.2%. The dividend is also well-protected by a 48% payout ratio, and comes with a 5-year CAGR of 8%.”
Nicholas Ward is a Senior Investment Analyst at Wide Moat Research. He has spent the last 8 years writing about the stock market at various publications, including Seeking Alpha, The Street, Forbes Real Estate Investor, Sure Dividend, The Dividend Kings, iREIT, Safe High Yield, and The Intelligent Dividend Investor.
Looking at Medtronic’s valuation, Gen Alpha concluded, “Given the quality of the enterprise, long-term growth attributes, and the turnaround in the chip supply chain, I believe the shares are too cheaply valued at present.”
When Gen Alpha wrote this, Medtronic shares were trading for $84.65. Today, they’re even cheaper, trading for $79.12/share. Ultimately, the author stated, “I believe Medtronic is a premium quality enterprise that trades at a significant discount to its historical valuations.” “As such,” they continued, “I view MDT as being a high quality buy for income and potentially strong total returns.”
Overall bias of Nobias Credible Analysts and Bloggers:
Yet, despite this slew of downgrades from the credible Wall Street community that Nobias tracks, the majority of credible authors that have published reports on MDT shares recently continue to be bullish on shares. 67% of recent reports published by credible authors have expressed a “Bullish” bias. While we saw 4 of the credible analysts that cover MDT lower their price targets on shares, the average price target amongst the credible individuals that the Nobias algorithm tracks for Medtronic is currently $99.33. Therefore, compared to Medtronic’s current share price of $79.19, that average credible analyst price target implies upside potential of approximately 25.4%.
Disclosure: Nicholas Ward is long MDT. Nicholas Ward wrote this article for Nobias at their request with the intention of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.
Additional disclosure: All content is published and provided as an information source for investors capable of making their own investment decisions. None of the information offered should be construed to be advice or a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. The information offered is impersonal and not tailored to the investment needs of any specific person.
Disclaimer: The Nobias star rating is based on past performance results and is not an indicator of future results. These past performance returns do not represent returns that any investor actually earned. Assumptions made include the ability to purchase the stocks recommended by the author under liquid markets where the transaction would be at the market price for the day. In reality, loss in liquidity may have a material impact on the returns that actually may have been earned. Further, returns are calculated without any including transaction costs, management fees, performance fees or expenses, or reinvestment of dividends and other income. This information is provided for illustrative purposes only.