Medtronic Plc (NASDAQ: MDT) reported its fiscal Q3 2022 earnings and revenue results on Tuesday, February 23, 2022, in which the company topped earnings estimates but missed estimates.
What to look for: The resurgence of COVID-19 affected healthcare procedure volumes, especially in the US, which resulted in the company missing its revenue expectations. Also, the US labor shortages in the healthcare system and foreign currency exchange rate had a $137 million impairment on revenues. Nevertheless, the company is upbeat about the fourth quarter and expects revenue to grow with the Omicron variant receding to pave the way for additional surgical procedures. Interestingly the company expects a 5.5% growth in revenue, but if present foreign exchange rates continue, they will negatively impact revenue by $185 million.
Earnings: Stockearning’s estimated EPS for the third quarter was pegged at $1.36 per share, but the company reported adjusted earnings of $1.37 per share. In the second quarter, the company produced a 2.33 earnings surprise with actual EPS of $1.32. For the fourth quarter, Medtronic predicts adjusted EPS of between $1.56 and $1.58, which is in line with Wall Street's prediction of $1.57 per share. Historical EPS performance shows that in the past 12 quarters, the company has topped estimates 11 times (91%) and missed once (8%).
Revenue: Medtronic’s revenue was down 0.2% YoY to $7.76 billion, missing analysts' expectations of $7.88 billion. At almost $4 billion, US revenue accounted for almost 51% of the company's total revenue, with non-US developed markets seeing a 3% drop in revenue to $2.5 billion, accounting for 31% of total revenue, and emerging market revenue was 5% up to $1.4 billion and accounted for 18% of total revenue. The third-quarter revenue results reflect unfavorable market conditions attributed to the COVID-19 pandemic and labor shortages in the US.
Stock movement: MDT shares have lost 14% since the company released its second-quarter earnings. Interestingly, the company’s shares have been DOWN 26 times out of the past 48 quarters. So, the historical price reaction suggests a 54% probability of the share price going Down following the fiscal Q3 2022 earnings release. According to the Stockearning algorithm, the predicted volatility on the first day is +/-2%, while the predicted volatility on the seventh day is +/-3%.
What analysts are saying: Raymond James analyst Jayson Bedford slashed his price target on the stock from $127 to $116 but maintained a Buy rating in the shares. In a research note, the analyst told investors that Medtronic's estimates reflect a modest growth profile that seems to be reflected mainly in sentiment.
Piper Sandler analyst Matt O'Brien slashed his price target on the stock from $110 to $105 and maintained a hold rating on the shares. According to the analyst, Medtronic is expected to receive permission for renal denervation in 2023, but the clinical community expects to view the findings of the most recent studies as disappointing. O’Brien told investors in a research note that when you factor in the need for broad reimbursement, adoption will be strong but likely lower than what the firm has been articulating to the Street.
Recently Morgan Stanley analyst Cecilia Furlong downgraded the stock from Buy to Hold and also slashed her price target on the stock from $145 to $120. BTIG analyst Ryan Zimmerman also downgraded MDT from Buy to Hold as part of a wider medical tech research note.
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