RBC Expects Strong Quarter From Medtronic

RBC expects a strong quarter from Medtronic PLC MDT when it reports its fourth quarter results on May 31.

Dublin, Ireland-based Medtronic makes medical devices such as pacemakers, implantable cardioverter defibrillators and drug delivery systems.

Expectations For The Quarter

"We expect a strong quarter on the topline, ~160bps of operating margin expansion, and double-digit EPS growth," analyst Glenn Novarro wrote in a note.

Novarro expects EPS of $1.27 on revenue of $7.49 billion. The EPS estimate was in line with consensus, but revenue estimate is modestly higher than the Street's view $7.48 billion.

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"Read-throughs from BSX and STJ indicate that MDT continues to gain ICD market share with its MRIsafe labeling, and pacing share with Reveal LINQ and the Advisa MRIsafe pacer. Additionally, our channel checks at ACC came back positive for MDT's Admiral DCB, as well as the overall TAVR market growth, which should help adoption of MDT's Evolut R," Novarro added.

The analyst noted that favorable exchange rates would add $50 million - $100 million to revenue and about $0.02 to EPS for the fourth quarter, while aiding margin growth.

Projections

Novarro projects about 31.3 percent operating margins in the fourth quarter (+160bps y/y) versus Medtronic's guide of 31.0–31.3 percent.

In addition, the analyst sees upside to FY17 consensus EPS estimate on favorable forex rates and the recent completion of debt tender has reduced interest payment, providing about $0.06–$0.08 of upside to EPS.

"[A]ssuming MDT completes its capital action plans and repurchases ~$5 billion of shares in FY2017 (consensus assumes ~$2.5 billion of repurchases), this should provide ~$0.10 of upside to EPS," Novarro noted.

Novarro forecast FY2017 revenues of $29.57 billion (consensus $29.6 billion) and EPS of $4.75 (consensus $4.69). Beyond fourth quarter results, the next catalyst for the stock is the June 6 Analyst Day.

Novarro has an Outperform rating and $87 price target on the stock.

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Posted In: Analyst ColorEarningsLong IdeasNewsGuidanceHealth CarePrice TargetPreviewsReiterationAnalyst RatingsTrading IdeasGeneralGlenn NovarroRBC
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