Here's Why You Should Hold on to Medtronic Stock for Now

Medtronic plc MDT has been gaining on robust segmental growth. Faster-than-expected recovery in the first quarter of fiscal 2021 and strong ventilators sales buoy optimism as well. However, foreign exchange fluctuations and a stiff competitive landscape are major downsides.

Over the past year, the Zacks Rank #3 (Hold) stock has lost 3.9% compared with the 3.3% fall of the industry and 12% rise of the S&P 500.

The renowned medical technology, services and solutions provider has a market capitalization of $140.83 billion. The company projects 7.8% growth for the next five years and expects to maintain strong segmental performance. The company surpassed estimates in three of the trailing four quarters and missed estimates in one, the average surprise being 50.06%.

Let’s delve deeper.

Impressive Q1 Results: We are upbeat about Medtronic’s better-than-expected results in first-quarter fiscal 2021. Despite dismal performance across all business segments and geographies, the company’s Respiratory, Gastrointestinal, & Renal businesses were robust. A faster-than-expected recovery in quarterly procedure volumes across multiple global markets buoys optimism.

Strong Ventilator Production: The significant growth in ventilators sales in the first quarter looks encouraging. Medtronic significantly ramped up ventilator production in the quarter to meet the worldwide demand of COVID-19-related patient needs. It has also increased the internal ventilator production fivefold in a matter of just a few months, from 200 a week to more than 1,000 a week.

Medtronic has also teamed up with Intel for remote ventilator settings. Further, it has collaborated with SpaceX, who is working to supply a critical valve for Medtronic’s PB980. Currently, the company is working with key government authorities to allocate its ventilators to communities where it is mostly needed, including emerging markets.

Regulatory Approvals: We are optimistic about the slew of regulatory approvals received by Medtronic. The company’s Evolut Transcatheter Aortic Valve Replacement (TAVR) system won the FDA’s approval for revised commercial labelling in August. In July, the company received the FDA’s approval and CE Mark for its LINQ II insertable cardiac monitor with remote programming.

Medtronic, in June, received the CE Mark for its Evolut TAVR system and its subsequent Europe launch for patients with severe native aortic stenosis who are at low risk of surgical mortality. Further, in the same month, Medtronic received the CE Mark for its Micra atrioventricular Transcatheter Pacing System.

The same month, Medtronic received CE Mark for its one-month dual antiplatelet therapy indication to address high bleeding risk patients who are implanted with the Resolute Onyx Drug-Eluting Stent.

Downsides

Exposure to Currency Movement: We are concerned about Medtronic’s exposure to currency fluctuations as it rakes in a significant portion of its sales from international markets. Unfavorable currency movements have been a major dampener over the last few quarters. Fiscal 2021 revenues are expected to get adversely impacted by currency translation of more than 20 cents.

Competitive Landscape: The presence of a large number of players has made the medical devices market highly competitive. The company faces intense competition from players such as Boston Scientific Corporation BSX in the cardio vascular business.

Estimate Trend

Medtronic has been witnessing an upward estimate revision trend for 2021. Over the past 90 days, the Zacks Consensus Estimate for its earnings has moved 12.8% north to $3.96.

The Zacks Consensus Estimate for second-quarter fiscal 2021 revenues is pegged at $7.05 billion, suggesting an 8.5% fall from the year-ago reported number.

Key Picks

Some better-ranked stocks from the broader medical space include Hologic, Inc. HOLX and Thermo Fisher Scientific Inc. TMO.

Hologic’s long-term earnings growth rate is estimated at 15.5%. It currently flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Thermo Fisher’s long-term earnings growth rate is estimated at 15%. It currently carries a Zacks Rank #2 (Buy).

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Medtronic PLC (MDT) : Free Stock Analysis Report
 
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