BofA: Medtronic's Growth 'Should Continue To Surprise'

Medical device maker Medtronic PLC MDT's rocketed higher after the company reported first-quarter earnings Tuesday.

The Analyst

Bank of America Merrill Lynch analyst Bob Hopkins reiterated a Buy rating  on Medtronic and increased the price target from $98 to $105.

The Thesis

MDT shares were up 18 percent in 2018, and the rise is due to an overly conservative revenue growth outlook, allowing the company to beat expectations for three consecutive quarters, Hopkins said in a Wednesday note. (See the analyst's track record here.) 

“MDT has also greatly improved the clarity of its guidance and has delivered on margin promises, but revenue growth upside has been the most significant driver of the stock," Hopkins said. "While we expect growth to slow in absolute terms going forward, we think the Street continues to underestimate MDT’s growth outlook." 

Concerns about competition in businesses such as deep brain stimulation have caused many investors to overlook strong growth in other areas, the analyst said. 

“Going forward, we expect MDT’s growth to slow in diabetes, stents, spinal cord [stimulation] and other areas, although it has many businesses that will accelerate and allow MDT to exceed expectations and keep growth in the 4-6-percent range." 

Growth catalysts include MDT’s new aspiration catheters, the WRAP-IT study, a new spine robot, LVAD indications and the pacer franchise, according to BofA. 

Price Action

MDT shares were 0.32 percent at $95.49 at the time of publication Wednesday.

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Photo courtesy of Medtronic.