Medtronic’s (NYSE:MDT) share price has grown around 20% over the last two years. This can be attributed to steady growth in its revenues, margin expansion, price to earnings multiple growth, and lower share count. In this note we discuss these factors that contributed to Medtronic’s stock price growth. You can view our interactive dashboard analysis ~ What Factors Led To Around 20% Growth In Medtronic’s Stock Over The Last Two Years? ~ for more details. In addition, you can see more of our data for Healthcare companies here.
Medtronic’s Stock Price Grew Over 20% From Around $84 By The End of Q1 Fiscal 2018 To Around $103 By The End of Q1 Fiscal 2020, Led By Steady Growth In Revenue, Margins, And P/E Multiple.
#1. Revenues Could Grow 6% From $30.0 Billion In Fiscal 2018 to $31.8 Billion In Fiscal 2020. The Biggest Change In Revenue Is The Company’s Restorative Therapies Group, Which Could Grow >10% During The Same Period.
- Cardiac & Vascular Group includes cardiac rhythm management devices for the diagnosis, treatment, and management of heart rhythm disorders and heart failure. It also includes coronary balloons, drug-coated balloons, and thoracic stent graft systems, among others. Minimally Invasive Therapies Group includes devices and therapies for neurological problems and imaging systems among other products. Restorative Therapies Group primarily includes devices and implants for conditions relating to the spine, musculoskeletal system, brain, and nerves. Diabetes Group includes sales of diabetes management products, which primarily consist of insulin pumps, and continuous glucose monitoring systems.
- Cardiac & vascular group revenue grew from $11.4 billion in fiscal 2018 to $11.5 billion in fiscal 2019, and it could grow to $11.8 billion in fiscal 2020, primarily led by higher Evolut PRO valve sales.
- Minimally invasive therapies group revenue declined from $8.7 billion in fiscal 2018 to $8.5 billion in fiscal 2019, and it could grow to $8.9 billion in fiscal 2020, likely led by higher demand for its patient monitoring products, along with sealing instruments, and advanced stapling products.
- Restorative therapies group revenue increased from $7.7 billion in fiscal 2018 to $8.2 billion in fiscal 2019, and it could grow to $8.6 billion in fiscal 2020, primarily led by higher demand for its brain and pain therapies, which have seen strong growth in the recent quarters, led by its Intellis spinal cord stimulation platform, and StealthStation surgical navigation systems.
- Diabetes group revenue also increased from $2.1 billion in fiscal 2018 to $2.4 billion in fiscal 2019, and we estimate it to grow to $2.6 billion in fiscal 2020, benefiting from the expansion of 670G, along with expected launch of 780G, which is an advanced version of its hybrid closed-loop system.
#2. Net Income Grew At A faster Pace Than Medtronic’s Revenues.
- Medtronic’s net income grew from $6.5 billion in fiscal 2018 to $7.1 billion in fiscal 2019, and an estimated $7.3 billion in fiscal 2020.
- This can be attributed to higher revenues and growth in net income margin.
- Net income margin grew from 22% in fiscal 2018 to 23% in fiscal 2019, and fiscal 2020E.
#2.1 Total Expenses Could Increase From $23.4 Billion In Fiscal 2018 To $24.5 Billion In Fiscal 2020. However, Total Costs As A Percentage of Revenue Have Declined.
- While Medtronic’s’s total expenses could grow from $26.9 billion in fiscal 2018 to $27.9 billion in fiscal 2020. total expenses as % of revenue could decline from 78% in fiscal 2018 to 77% in fiscal 2020.
- COGS as % of revenue have been stable around 30%, and we expect it to remain around the same mark. R&D as % of revenue grew slightly from 7.5% in fiscal 2018 to 7.6% in fiscal 2019, and an estimated 7.8% in fiscal 2020.
- Other operating expenses as % of revenue grew from 6.7% in fiscal 2018 to 7.8% in fiscal 2019, and it could grow to 8.5% in fiscal 2020. Interest & other expenses as % of revenue grew from 3.3% in fiscal 2018 to 3.5% in fiscal 2019, and it could grow to 3.8% in fiscal 2020.
- Effective tax rate has fluctuated in the recent years. It fell from 45.5% in fiscal 2018 to 10.5% in fiscal 2019, and an estimated 16.5% in fiscal 2020. Non-GAAP adjustments have also fluctuated, partly reflecting the impact of the tax bill. The figure grew from -11.4% in fiscal 2018 to -8.0% in fiscal 2019, and it is estimated to be -10.6% in fiscal 2020.
#2.2 EPS Has Also Seen Steady Growth, Led By Revenue & Margin Growth, And Lower Share Count.
- Adjusted EPS grew from $4.78 in fiscal 2018 to $5.22 in fiscal 2019, and an estimated $5.50 in fiscal 2020.
- This can be attributed to higher net income, driven by higher revenues and margin expansion, as discussed above.
- No. of shares could decline from 1.4 billion in fiscal 2018 to 1.3 billion in fiscal 2020.
#3. Price To Earnings Multiple for Medtronic Grew 5% Over The Last 2 Years.
- Medtronic’s price to earnings multiple grew from 17.6x in 2017 to 18.6x in 2019, based on fiscal 2020 expected earnings.
- We have used share prices for fiscal Q1 ending period to derive the price to earnings multiple.
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