Recently, medical devices major -
) provided an update on its fiscal 2013 earnings per share (EPS)
guidance. The company, in an investors' presentation, stated that
it has increased the lower end of its earlier provided EPS
guidance by 4 cents, enthused by the renewal of a tax credit.
Accordingly, now the EPS for the said fiscal is expected to
remain in the band of $3.66−$3.70 (earlier range being
$3.62−$3.70) indicating annualized earnings growth of 6%−7% a
share (earlier rate of growth range being 5%-7%). The current
Zacks Consensus Estimate of $3.66 per share stays at the lower
end of the guided range.
Medtronic stated that the narrowing of its bottom-line
forecast was on the back of favorable impact from the recent
renewal of the U.S. Research and Development (R&D) tax
credit. As per the company's estimates, the tax credit will boost
the fiscal 2013 net income by $30−$35 million or 4 cents per
share. Among these, 3 cents are expected to be realized in the
coming quarter with the remaining in the next. We note that the
Zacks Consensus EPS Estimates for the third and fourth quarters
2013 are 90 cents and $1.03, respectively. Medronic is slated to
release its third-quarter fiscal 2013 results, ending January 31,
2013, on February 19, 2013.
In the last earnings call, the company, while discussing the
outlook for the current fiscal, stated that the uncertainties
surrounding the final IRS or
Internal Revenue Service implementation guidelines of the U.S.
medical device tax as well as the renewal of the U.S. R&D tax
credit forced Medtronic to take a conservative stance.
Notably, on December 5, 2012, IRS released the final rules for
the long discussed medical device excise tax, which stands
effective after December 31, 2012. According to this, a 2.3%
excise tax is payable on the sales of certain medical device
products ranging from surgical sutures to knee replacement
implants. We believe, this additional tax burden will throttle
innovation as it will impact investment in R&D. The other
leading medical devices companies like
St. Jude Medical
) are also expected to act alike.
Currently, we prefer to remain on the sidelines until more
visibility is obtained in this regard. We have a long-term
'Neutral' recommendation on Medtronic, which carries a short-term
Zacks #3 Rank (Hold).
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