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MDT’s Earnings Are Expected to Continue to Grow in Fiscal 3Q16

Medtronic Is Expected to Boast a Strong Fiscal 3Q16

(Continued from Prior Part)

Medtronic’s earnings estimate

Wall Street has projected strong improvements in Medtronic’s (MDT) fiscal 3Q16 net profit margins, which are estimated to be ~$1.5 billion. This represents year-over-year (or YoY) net profit margin growth of around 21.2% against 14.7% growth in the last quarter.

As shown in the graph above, Medtronic has witnessed a consistent increase in net earnings over the past year and is expected to continue the same trend. Medtronic’s acquisition of Covidien, one of the largest acquisitions in medical device industry, is the major factor driving Medtronic’s earnings growth.

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The combined company’s product portfolio and geographic expansion have accelerated the core strategies of Medtronic, which include therapy innovation, globalization, and economic value creation. The combined product portfolio provides a more comprehensive and efficient suite of products to healthcare providers, thereby gaining higher market share.

Medtronic is thus positioned to take advantage of the changing landscape of the healthcare industry through value-based business models and a diverse product portfolio.

Consensus estimates versus performance trends

Wall Street has provided a consensus EPS (earnings per share) estimate of $4.38 for Medtronic for fiscal 3Q16, and the company has provided adjusted EPS guidance of $4.33–$4.40. The estimate includes an expected $0.45–$0.50 cents of negative currency impact.

Though the majority of Medtronic’s earnings in developed countries are hedged, a major portion of its earnings—especially from emerging markets—remains unhedged. This creates volatility in its earnings.

According to the above graph, Medtronic has beaten consensus EPS estimates consistently over the past few quarters. Analysts expect Medtronic to report adjusted EPS growth of 10.2% YoY in fiscal 3Q16 and a sequential rise of around 46%.

For the recent quarters, major competitors Abbott Laboratories (ABT), Thermo Fisher Scientific (TMO), and Johnson & Johnson (JNJ) are expected to register higher net profit margins of 15.3%, 17.6%, and 22.2%, respectively.

The Health Care Select Sector SPDR ETF (XLV) has around 13% exposure to the medical device industry. Medtronic accounts for ~4.2% of the total holdings of XLV.

Browse this series on Market Realist: