Medtronic Seen As Fairly Valued At Argus

Medtronic PLC MDT reported mixed results for 4Q16, while issuing new guidance for FY17. Argus’ David Toung maintained a Hold rating on the company.

Toung believes the stock valuation fully reflects Medtronic’s growth outlook following the acquisition of Covidien in January 2015.

4Q16 Results

The company reported revenue growth of 5 percent for its Cardiac & Vascular Group, along with 3 percent revenue growth for the Minimally Invasive Therapies Group and 6 percent for the Diabetes Group.

However, the Restorative Therapies Group grew only 1 percent and witnessed softness in the neuromodulation businesses.

The company’s consolidated sales came in at $7.567 billion for 4Q16, while adjusted EPS increased to $1.37 from $1.16 in 4Q15.

“GAAP net income came to $1.104 billion or $0.78 per share, compared to a net loss of $1 million or breakeven a year ago. The adjusted gross margin for the quarter was 69.8 percent, up 20 basis points,” Toung mentioned.

For FY16, the adjusted EPS was above the FY15 levels, as was the GAAP net income and sales.

Five-Year Plan

At its annual Investor Day on June 6, Medtronic discussed its growth outlook for the next five years, with management announcing the company would expand into large joint orthopedics with the acquisition of Responsive Orthopedic.

“Management also laid out a five-year plan to grow revenue by mid-single digits annually for the next five years,” Toung stated.

Management intends to drive revenue growth via small acquisitions and new product launches, targeting operating margin expansion of 500-650 basis points.

The EPS growth target is in the double digits annual through FY21, while the company guided to adjusted EPS of $4.60-$4.70 for FY17.

“Based on the company’s financial guidance for FY17, we lowering our EPS estimate to $4.68 from $4.74,” the analyst added.