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Here's Why You Should Retain Medtronic (MDT) Stock for Now

Medtronic plc MDT is well-poised for growth in the coming quarters, backed by the performance of the Cardiovascular portfolio. The company ended the fiscal fourth quarter with better-than-expected earnings and revenues. Medtronic’s largest businesses Cardiac Rhythm, Surgical and Spine plus ENT laid a strong foundation for the company’s growth in the quarter. However, escalated expenses do not bode well for MDT.

In the past year, this Zacks Rank #3 (Hold) stock has decreased 17.6% compared with the industry’s 33.8% fall and a 2.3% rise of the S&P 500 composite.

The renowned medical device company has a market capitalization of $108.4 billion. Medtronic has an earnings yield of 6.27% against the industry’s yield of -2.37%. The company’s earnings surpassed estimates in all the trailing four quarters, delivering an average surprise of 1.57%.

Let’s delve deeper.

Tailwinds

Impressive Q4 Performance: Medtronic recorded an earnings and revenue beat in the fiscal fourth quarter. Growth across the company was driven by procedure volume recovery, supply improvements and innovative product introductions.

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MDT’s organic revenues reflected strong performances in the Cardiovascular, Medical Surgical and Neuroscience portfolios and across Diabetes markets outside the United States. The company received the CE Mark for the Affera mapping and ablation system and FDA approval for the MiniMed 780G system with a Guardian 4 sensor. Medtronic recently announced a strategic collaboration with NVIDIA and Cosmo Pharmaceuticals to accelerate AI innovation for healthcare.

Neurosurgery Portfolio’s Strong Growth Prospects: Within Medtronic’s Neuroscience portfolio, Cranial and Spinal Technologies’ growth was driven by Core Spine growth globally. Domestic growth banked on the continued adoption of the market-leading Aible spine technology ecosystem.

Growth in Neuromodulation was driven by mid-single-digit growth in Pain Stim on increased therapy trials and market recovery. Specialty Therapies demonstrated broad-based strength on low-double-digit growth in Neurovascular and ENT and mid-single-digit growth in Pelvic Health.

Market Share Gain Within Cardiovascular Continues: Within Structural Heart, Medtronic won the Transcatheter Aortic Valve Replacement (TAVR) share in the United States on the strength of Evolut FX. It combines industry-leading durability with enhanced and predictable valve deployment.

The Cardiac Rhythm & Heart Failure division’s results were driven by growth in Micra transcatheter pacing systems and the LINQ family of insertable cardiac monitors. Cardiac ablation solutions grew 5% and made significant advances in the company’s pipeline during the quarter.

Downside

Mounting Expenses Strain Margins: In the fiscal fourth quarter, the gross margin contracted due to a 15% rise in the cost of revenues. The quarter also witnessed increased SG&A expenses, causing a 114-basis point contraction in the adjusted operating margin.

Estimate Trend

Medtronic has been witnessing a negative estimate revision trend for 2023. The Zacks Consensus Estimate for 2023 earnings per share (EPS) has moved from $5.23 to $5.18 in the past 30 days and to $5.11 in the past seven days.

The consensus estimate for the company’s 2023 revenues is pegged at $32.3 billion. This suggests a 1.9% rise from the year-ago reported number.

Key Picks

Some better-ranked stocks in the broader medical space are Zimmer Biomet ZBH, Penumbra PEN and Hologic, Inc. HOLX.

Zimmer Biomet has an earnings yield of 5.72% compared to the industry’s yield of -2.31%. The company’s earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average surprise being 7.38%. Its shares have increased 6% against the industry’s 32.2% decline in the past year.

ZBH sports a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Penumbra, sporting a Zacks Rank of #1 at present, has an estimated growth rate of 64.1% for 2024. The company’s shares have risen 120% against the industry’s 0.7% decrease over the past year.

PEN’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 109.4%.

Hologic, carrying a Zacks Rank #2 (Buy) at present, has an earnings yield of 4.84% compared to the industry’s yield of -7.06%. Shares of HOLX have risen 5.4% against the industry’s 0.7% rise over the past year.

The company’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 27.3%.

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Medtronic PLC (MDT) : Free Stock Analysis Report

Hologic, Inc. (HOLX) : Free Stock Analysis Report

Zimmer Biomet Holdings, Inc. (ZBH) : Free Stock Analysis Report

Penumbra, Inc. (PEN) : Free Stock Analysis Report

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