Why So Ho-Hum About Medtronic's Quarter?

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  • Shares of Medtronic PLC MDT have declined 7.45 percent in the last five days.
  • Joanne Wuensch of BMO Capital Markets reiterated an Outperform rating and price target of $87 on Medtronic.
  • Despite reporting strong revenue for F1Q16, Medtronic’s stock performance has been “lackluster.”

The company reported robust top and bottom line results for the quarter, along with revenue that was well ahead of the consensus. According to the BMO report, “The strength was broad based and throughout the worldwide geographies.”

US sales increased 14 percent, driven by increased procedural volumes in the country, new product launches and “pull-through from implantable devices” and services. Sales outside the US grew 10 percent, while those in the emerging markets increased 14 percent, including sales in Mainland China, which increased in the low double digits.

However, the stock’s reaction was tepid, which Wuensch believes could be due to the management mentioning that the FY2Q EPS could be down by “a few pennies,” driven by greater Fx headwinds in H1 and better Covidien synergies in H2. In addition, the flow through of the robust revenue to the EPS “was not as great,” Wuensch explained.

“Overall, we did not see any “fundamental” issues with the quarter and believe it reflects the strength of the combined franchise, positioning MDT to deliver revenue growth at the upper end of its 4-6 percent guidance range,” the report added.

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Posted In: Analyst ColorReiterationAnalyst RatingsBMO Capital Markets
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