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MDT shares crash to two-year low sales lag — Is there a silver lining?




Medtronic (MDT) early Tuesday reported mixed earnings and lower-than-expected organic sales growth, sending MDT stock down.




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During the fiscal second quarter, Medtronic adjusted earnings of $1.30 per share fell 2% year-over-year but topped expectations by two cents, according to FactSet. Sales fell 3% on a straight, as-reported basis to $7.59 billion. But analysts had forecast almost $7.7 billion.

The company also lowered its profit expectations for the year.

“Our expectations were low for the quarter, but the results were still a disappointment,” Edward Jones analyst John Boylan said in a report. “But that’s not where our focus lies, as we believe the drivers of this quarter’s issues should resolve themselves over time, and most are not unique to Medtronic.”

On today’s stock market, the MDT share fell 5.3% to 77.93. Shares hit their lowest point since March 2020.

MDT stock: TAVR, diabetes brings bright spots

Organically, sales rose just 2%, missing Medtronic’s guidance of 3% to 3.5% growth, Evercore ISI analyst Vijay Kumar said in a report. The main source of the decline was the medical-surgical and cardiovascular businesses. Sales in both came in below expectations.

But Kumar noted bright spots in the quarter included Medtronic’s non-surgical method of replacing a defective heart valve and its diabetes business. Sales of transcatheter aortic valve replacement, or TAVR devices, increased by a percentage point in the mid-teens. Diabetes device sales fell 5% on a reported basis with a double-digit decline in the US due to no new product approvals. But organic sales rose 3%.

Kumar maintained his outperform rating and 105 price target on MDT shares.

The diabetes business has been under pressure. In late 2021, the Food and Drug Administration issued a warning letter following an inspection of Medtronic’s diabetes unit. The company is still working on a next-generation continuous glucose monitor called Simplera and is hoping for approval of a new insulin pump called the 780G.

“If the warning letter is removed, a 780G approval and Simplera launch could turn this segment into high single digit growth,” Kumar said.

Is Robotic Surgery Next?

Edward Jones’ Boylan is also looking at Medtronic’s efforts in robotics with a surgical device called the Hugo. Hugo helps doctors perform some operations. Orders in markets where the robot is approved appear solid. Medtronic is working toward FDA approval.

“These developments, combined with internal improvements we are seeing, should ultimately return Medtronic to sales and earnings growth,” he said. “That said, the recovery has taken longer and with more bumps in the road than we expected, but continue to believe that patience will be rewarded.”

He does not believe that the outlook is reflected in the MDT share today.

For the second half of the fiscal year, Medtronic expects 3.5% to 4% organic sales growth, accelerating from the first half. But the company cut its full-year adjusted earnings outlook and now sees $5.25 to $5.30 per share. Three months ago, the company guided for adjusted earnings of $5.53 to $5.65 per share.

Follow Allison Gatlin on Twitter at @IBD_AGatlin.

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