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Medtronic (MDT) Up 4.2% Since Earnings Report: Can It Continue?

A month has gone by since the last earnings report for Medtronic plcMDT . Shares have added about 4.2% in that time frame, outperforming the market.

Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Medtronic Tops Q4 Earnings, Sales on Balanced Growth

Medtronic reported financial results for fourth-quarter fiscal 2017. Adjusted earnings per share (EPS) in the reported quarter came in at $1.33, $0.02 ahead of the Zacks Consensus Estimate and up 4.7% year over year.

Adjustments in the quarter primarily included certain impact of restructuring charges, intangible asset amortization and acquisition-related items. After adjusting unfavorable foreign exchange impact of $0.02, adjusted EPS came in at $1.35, up 6% year over year.

Without these adjustments, the company reported net income of 84 cents per share, up 7.7% year over year.

For the full year, adjusted earnings came in at $4.60 per share, a 5.3% improvement from the year-ago period.

Total Revenue

Worldwide revenues in the reported quarter grossed $7.92 billion, up 5% on a constant exchange rate or CER basis (same as reported). The top line remained ahead of the Zacks Consensus Estimate of $7.86 billion. Foreign currency fluctuation affected Medtronic's fiscal fourth quarter revenues by $37 million.

Fiscal 2017 revenues came in at $29.71 billion, up nearly 5% at CER on constant week basis. This has also sailed past the Zacks Consensus Estimate of $29.64 billion.

In the quarter under review, U.S. sales (56% of total sales) increased 4% year over year to $4.40 billion. Non-U.S. developed market revenues totaled $2.45 billion (31% of total sales), a 4% increase at CER (up 2% as reported). Emerging markets experienced 10% revenue growth (up 11% as reported) to $1.06 billion at CER.

Segment Details

The company currently generates revenues from four major groups, viz. Cardiac & Vascular Group (CVG), Minimally Invasive Therapies Group (MITG), Restorative Therapies Group (RTG) and Diabetes Group.

CVG comprises Cardiac Rhythm & Heart Failure (CRHF), Coronary & Structural Heart (CSH), and Aortic & Peripheral Vascular divisions (APV). MITG includes both the Surgical Solutions division and the Patient Monitoring & Recovery (PMR) division. RTG includes the Spine, Brain Therapies, Specialty Therapies and Pain Therapies segments, while the Diabetes Group incorporates the Intensive Insulin Management (IIM), Non-Intensive Diabetes Therapies (NDT), and Diabetes Service & Solutions (DSS) divisions.

Revenues from CVG improved 5% at CER (or up 4% as reported) to $2.85 billion, driven by strong, balanced growth across all three divisions.

CRHF sales were $1.54 billion with 4% year-over-year growth at CER (up 3% as reported). This came on the back of growth in mid-single digit in Arrhythmia Management at CER. This apart, the HeartWare International acquisition drove growth in Heart Failure division.

CSH revenues were up 4% at CER (same on a reported basis) to $847 million on the back of mid-thirties constant currency growth in transcatheter aortic valves as a result of strong customer adoption of the CoreValve Evolut R platform.

APV revenues registered 6% growth at CER (up 5% as reported) to $457 million, driven by mid-single digit growth in Aortic and high-single digit growth in Peripheral.

In MITG, worldwide sales reached $2.61 billion, marking a 6% year-over-year increase at CER on high-single digit growth in Surgical Solutions and mid-single digit growth in PMR.

In RTG, worldwide revenues of $1.95 billion were up 5% year over year at CER (up 4% as reported) on high-single digit growth in Brain Therapies, mid-single digit growth in Specialty Therapies and low-single digit growth in Spine, thus mitigating a decline in Pain Therapies. Revenues from the Diabetes group went up 4% at CER (up 3% as reported) to $512 million.

Margins

Gross margin during the reported quarter expanded 45 basis points (bps) to 69.2% on 5.3% increase in gross profit to $5.48 billion. Adjusted operating margin improved 6 bps year over year to 30.3%. This was owing to a 5% rise in selling, general and administrative expenses (to $2.48 billion) which was offset by a 3.8% decline in research and development expenses (to $553 million). Other expenses in the reported quarter was $48 million as compared to Other income of $21 million in the year-ago period.

Guidance

Medtronic has also provided its initial fiscal 2018 revenues and EPS guidance. The company expects full-year revenues to grow in the range of 4-5% at CER. Foreign currency fluctuation this time is expected to have a positive $75-$175 million impact for the fiscal year. However for the first quarter of fiscal 2018, currency translation will adversely impact to the tune of $10-$60 million on revenues. The Zacks Consensus Estimate for revenues remains at $30.72 billion for fiscal 2018.

Fiscal 2018 adjusted earnings per share is expected to grow in the range of 9-10% at CER. Currency translation will negatively impact the full-year earnings number by approximately $0.05-$0.10, including the $0.03-$0.05 impact in the first quarter. The Zacks Consensus Estimate is pegged at $4.93 per share.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed a downward trend in fresh estimates. There have been five revisions lower for the current quarter.

Medtronic PLC Price and Consensus

Medtronic PLC Price and Consensus | Medtronic PLC Quote

VGM Scores

At this time, the stock has a subpar Growth Score of 'D', however its Momentum is doing a lot better with a 'B'. Following the exact same course, the stock was allocated also a grade of 'B' on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of 'C'. If you aren't focused on one strategy, this score is the one you should be interested in.

Zacks' style scores indicate that the company's stock is suitable for value and momentum investors.

Outlook

Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. Notably, the stock has a Zacks Rank #3 (Hold). We are looking for an inline return from the stock in the next few months.

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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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