Can CVG Boost Medtronic's (MDT) Q3 Earnings Once Again?

Medtronic plcMDT is scheduled to report third-quarter fiscal 2018 results before the opening bell on Feb 20.

Last quarter, the company delivered earnings ahead of the Zacks Consensus Estimate by 8.1%. In fact, Medtronic's bottom line outpaced the estimates in all the trailing four quarters with an average beat of 3.55%.

Let's see, how things are shaping up prior to this announcement.

Key Catalysts

We look forward to another quarter of solid growth on the company's successful execution of three growth strategies such as therapy innovation, globalization and increasing the economic value for Medtronic. Combined with the demographics of an aging population, these positives have started to open up opportunities for Medtronic, which should get reflected in the third quarter as well.

The space of therapy innovation is filled with multiple developments. Under the Cardiac and Vascular Group (CVG), new therapies are helping the company gain traction in the rapidly growing MedTech markets for left ventricular assist device (LVAD), transcatheter aortic valve replacement (TAVR), drug-coated balloons, atrial fibrillation ablation and insertable diagnostics.

Medtronic PLC Price and EPS Surprise

Medtronic PLC Price and EPS Surprise | Medtronic PLC Quote

In the fiscal third quarter, Medtronic is expected to have maintained a market share in the core pacing, ICD (implantable cardioverter defibrillator) and CRT (cardiac resynchronization therapy) product lines within the scope of CRHF (cardiac rhythm and heart failure) while creating new meaningful markets to enhance the company's weighted average market growth.

Within the TAVR space, the company expects to see continued global growth on strong adoption around the world for Evolut PRO valve as well as expansion in the traditional U.S. TAVR centers and U.S. share capture resulting from Medtronic's new intermediate risk indication.

After several quarters of dull Drug Eluting stent (DES) performance in coronary, the company's DES product line witnessed growth in both the United States and Japan since the last couple of quarters. This upside is driven by the recent launch of Resolute Onyx in the said markets. Further, these developments buoy optimism and strengthen our belief for a strong quarterly performance by the company in the to-be-reported quarter.

In fiscal 2018, CVG is projected to rise 5.5-7% with growth pertaining to the third quarter of fiscal 2018 on a more favorable prior-year comparison. The Zacks Consensus Estimate for CVG revenues in the fiscal third quarter is pegged at $2.77 billion, 9% higher than the year-ago reported number of $2.54 billion.

Within Minimally Invasive Therapies Group (MITG), surgical innovations should register sturdy growth, driven by new products in advanced stapling and advanced energy. Advanced stapling growth should come on the back of endo stapling specialty reloads with Tri-Staple technology as well as Signia. Advanced Energy growth should bank on a continued rollout of the company's LigaSure instruments and Valleylab FT10 energy platform.

Medtronic expects MITG revenue increase in the range of 3-3.5% in fiscal 2018. Notably, the first half of fiscal 2018 lodged lower MITG rise due to adverse impact from Hurricane Maria, implying an accelerated second-half improvement of 3.5-4.5%.

Within the Restorative Therapies Group (RTG), the company witnesses encouraging developments regarding the brain therapy space. This division experienced a very strong second quarter, driven by high 20s' growth in neurovascular with strength across the entire stroke portfolio, plus a mid-teens increase in neurosurgery. We expect this bullish trend to continue in the third quarter as well.

Medtronic estimates its RTG growth of approximately 3% in fiscal 2018, balancing the impact of Hurricane Maria and in spine market, the projection is flat to slightly down with continued strength in brain therapies. The Zacks Consensus Estimate for MITG revenues in the soon-to-be-reported quarter is pegged at $1.91 billion, 5.5% higher than the year-ago reported figure.

Overall, Medtronic expects full-year revenue growth of 4-5% at CER. Currency fluctuation is expected to leave a positive impact of $275-$375 million on fiscal results. The Zacks Consensus Estimate for 2018 revenues remains at $29.49 billion.

Adjusted earnings per share growth for fiscal 2018 is expected in the range of 9-10% at CER. Currency translation is expected to adversely impact with a couple of cents. The consensus mark for fiscal 2018 earnings is pegged at $4.76.

Here's What Our Quantitative Model Predicts:

Medtronic does not have the right combination of the two main ingredients - a positive Earnings ESP and a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) - for increasing the odds of an earnings beat.

Zacks ESP: Medtronic has an Earnings ESP of -0.08%. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Zacks Rank: Medtronic carries a Zacks Rank #3 (Hold), which increases the predictive power of ESP. However, a company needs a positive ESP to be confident about an earnings surprise. Hence, this combination leaves surprise prediction inconclusive.

We caution against Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some stocks you may want to consider from the same space as our proven model shows that these have the right combination of elements to beat on earnings in the upcoming releases:

Universal Health Services, Inc. UHS has an Earnings ESP of +1.34% and a Zacks Rank #2. You can see the complete list of today's Zacks #1 Rank stocks here .

Inogen, Inc. INGN has an Earnings ESP of +25.3% and a Zacks Rank of 2.

Exelixis, Inc. EXEL has an Earnings ESP of +10.64% and is a Zacks #2 Ranked player.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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