Leading medical devices company
Medtronic
(
MDT
) is expected to report second quarter fiscal 2012 results before
the market opens on Tuesday, November 22, 2011. The company is
expected to earn an EPS of 82 cents on revenues of $4.066 billion
during the quarter, according to the Zacks Consensus Estimate.
Medtronic met its expectations in the first quarter of fiscal
2012. The four-quarter positive surprise of 0.54% implies that the
company has surpassed the Zacks Consensus Estimate by this
magnitude over the last four quarters.
Previous Quarter Highlights
Medtronic reported an adjusted EPS of 79 cents in the first
quarter of fiscal 2012, in line with the Zacks Consensus Estimate
and a penny lower than the first quarter of fiscal 2011.
Revenues were $4.049 billion in the quarter, up 7% (up 2% at
constant exchange rates or CER) year over year and higher than the
Zacks Consensus Estimate of $3.991 billion.
Medtronic's seven divisions - Cardiac Rhythm Disease Management
(CRDM), Spinal, CardioVascular, Neuromodulation, Diabetes, Surgical
Technologies and Physio-Control - generated corresponding sales of
$1.253 billion (up 2% year over year but down 3% at CER), $825
million (flat or down 3% at CER), $850 million (up 19% or 11% at
CER), $397 million (up 7% or 4% at CER), $355 million (up 14% or 9%
at CER), $266 million (up 13% or 9% at CER) and $103 million (up
23% or 17% at CER).
Agreement of Estimate Revisions
Over the past month, out of the 19 analysts covering the stock,
4 have lowered their estimates for the second quarter with
none moving in the opposite direction. In the last 7 days, 1
analyst reduced his/her estimate for the quarter.
The biggest segment of Medtronic, CRDM continues to witness
several headwinds since the past few quarters. The US ICD market
continues to be affected by a number of challenges, namely the
adverse Journal of the American Medical Association (JAMA) article
published in January 2011 and the Department of Justice (DOJ)
investigation of hospitals. Medtronic's competitors,
Boston Scientific
(
BSX
) and
St Jude Medical
(
STJ
), also face a similar situation and are trying to increase their
respective market share amidst declining ICD market growth.
Moreover, the Spinal segment is also under the scanner as
several questions have been raised regarding Medtronic's
recombinant bone morphogenic protein-2 (rhBMP-2) in the recent
past. Pricing pressure and economic uncertainty in the US and
Europe are taking a toll on the medical devices industry, as
reflected in recent earnings releases.
We also expect an update regarding the US trial of Medtronic's
CoreValve system. This is significant since
Edwards Lifesciences
(
EW
) has recently received approval from the US Food and Drug
Administration (FDA) for its Sapien transcatheter heart valve.
Although recent product launches in the CRDM business will
provide some incremental sales, Medtronic's top line would continue
to remain under pressure. This might force the company to revise
its guidance for fiscal 2012. However, the continuous share buyback
program and restructuring initiatives undertaken by the company
might act as some cushion to the bottom line.
Magnitude of Estimate Revisions
Given nominal estimate revisions from the analyst community over
the past 7 and 30-day periods, the consensus estimate for the
current quarter has remained static at 82 cents over the last 60
days. However, the consensus estimate for fiscal 2012 has dropped
by a penny to $3.44 over the past month.
Our Take
We believe Medtronic's recent decision to divest the
Physio-Control business is a good move as it will help it to focus
on its core segments. Besides, the divestiture of this low-margined
business would also aid the company's financials.
Having witnessed several headwinds in its two biggest segments -
CRDM and Spinal - Medtronic is trying every means to revive growth.
This includes penetration of international markets, portfolio
expansion and restructuring initiatives, which should benefit the
company over the long term.
We currently have a Neutral recommendation on Medtronic, which
also corresponds to the Zacks #3 Rank (Hold) in the short term.
BOSTON SCIENTIF (
BSX
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EW
): Free Stock Analysis Report
MEDTRONIC (
MDT
): Free Stock Analysis Report
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STJ
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