Should Medtronic Make The Cut For Your Recovery Watchlist?

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By MarketBeat. Originally published at ValueWalk.

Medtronic 10 biggest securities companies

Investors Have To Ask If Consistent Performance Is Enough

Medtronic (NYSE:MDT) stock is down 6% since the medical device company reported earnings on May 26, 2022. This left shareholders on the outside looking in as the broader market staged a late-week rally.

The company’s results weren’t terrible. However, in a market where even the slightest mistake will be punished, it was enough of a disappointment to have investors look for better options. In this article, we’ll take a look at MDT stock so you can decide if it deserves a place on your recovery watchlist.


Q1 2022 hedge fund letters, conferences and more

View Earnings With a Longer Lens

First the bad news. By the metrics that matter, Medtronic delivered a disappointing earnings report. In the fourth quarter of its fiscal year 2022, the company missed on both the top and bottom line. Revenue came in at $8.09 billion which was 4% below expectations for $8.43 billion. Earnings per share (EPS) came in at $1.52 which was about 2% off expectations of $1.56.

However, when you step back and look at the results from a historical perspective, there’s a high degree of consistency in the company’s results. Here’s how earnings and revenue compared for FY2022, FY2021, and FY2019 (I left out FY2020 which was an outlier due to the pandemic).

FY2019 FY2021 FY2022
Revenue (in billions) $8.15 $8.19 $8.09
Earnings per share (EPS) $1.54 $1.50 $1.52

Other Fundamentals Are Positive

The company reported $6 billion in free cash flow (FCF) for the year which was higher than the $4.88 billion in FCF Medtronic reported in the prior year. And it also announced a 7.9% increase in its dividend from 63 cents to 68 cents per share. This makes it 45 consecutive years of dividend increases for Medtronic.

And looking at the earnings presentation, revenue was being distributed relatively consistently across all of the country’s product categories as well as the regions in which it does business. In fact, while organic revenue growth fell by 2% in the United States it grew in the high single digits in Europe.

What Are the Analysts Saying?

The predominant analyst reaction is a lowering of price targets. But it’s hard to say for certain that this is solely because of the earnings report. The markets have been repricing stocks for quite some time so it’s fair to say that the cake may have already been baked. However, one analyst from Needham did downgrade MDT stock from a Buy to a Hold.

What’s the Why?

Of course, knowing what was reported is only part of the story. The question is why. In the case of Medtronic, the culprit is ongoing supply chain disruptions as well as the Covid-related lockdowns in China. Medtronic chief executive officer (CEO) remarked, “Global supply chain challenges have impacted many of our businesses, and as they arise, our teams have worked quickly to resolve them. While some of our Q4 challenges will persist in the near term, we expect strong improvement in the back half of our fiscal year.”

It’s important for investors to know that the back half of the company’s fiscal year means the end of 2022 and the beginning of 2023. That means for the next couple of quarters, the company is likely to show slow growth.

Should Medtronic Stock Make Your Watchlist?

As noted above, Medtronic has been consistent. Those revenue and EPS figures could be plotted against almost any quarter and you’ll see a remarkable similarity. Looking at the historical stock chart for Medtronic that would be good news for investors because the stock shouldn’t have further to fall.

But it’s fair to ask if MDT stock will have much further to rise. Analysts tracked by MarketBeat give the stock a price target of $122.38 which is a 23% upside. But if the company’s own forecast is accurate, much of that growth won’t occur until 2023 at the earliest. In the meantime, Medtronic’s dividend is solid, but not spectacular.

For that reason, my belief is there’s no urgency to jump on MDT stock if you don’t have a position. However, if you do have a position, holding would seem to be the plan for now.

Should you invest $1,000 in Medtronic right now?

Before you consider Medtronic, you’ll want to hear this.

MarketBeat keeps track of Wall Street’s top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on… and Medtronic wasn’t on the list.

While Medtronic currently has a “Buy” rating among analysts, top-rated analysts believe these five stocks are better buys.

Article by Chris Markoch, MarketBeat

Updated on

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