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Medtronic’s Earnings Are Expected to See Growth in Fiscal 4Q16

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Analyst estimates

Medtronic (MDT) accounts for ~0.14% of the total holdings of the SPDR S&P 500 ETF (SPY). The company has managed to meet or exceed analysts’ earnings estimates for the last several quarters. However, the revenue estimates were a miss in 3Q16. Share price movement is generally impacted due to the deviation of the company’s actual results from analysts’ estimates. Stock prices usually increase if the company’s results beat analysts’ expectations and vice versa. In 3Q16, Medtronic met analysts’ EPS (earnings per share) estimate of $1.06 but failed to meet the revenue estimates of around $6.9 billion.

eps estimate vs actual

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According to analysts’ estimates, the company’s fiscal 4Q16 EPS is expected to come in at about $1.26. Medtronic expects to report fiscal 2016 EPS of $4.36–$4.40. The adjusted EPS for 2016 is expected to be impacted negatively by currency headwinds of $0.45 to $0.50. Earnings growth is likely to be driven primarily by Covidien integration synergies, medical device tax investment, share repurchases and product expansion, and growth of Medtronic’s business.

4q16 projections

Profit margin estimates

For 4Q16, Wall Street projects that Medtronic’s net profit margin will rise to $1.8 billion. The estimate represents ~23.4% of the total revenue compared to a ~16.3% net profit margin reported in the previous quarter. On a YoY (year-over-year) basis, the 4Q16 net profit margin is expected to rise by ~104% compared to the ~11.7% margin reported in 4Q15. Covidien integration synergies have improved operating margins but haven’t contributed much to the gross profit margin growth.

In the recent quarter, Medtronic’s peers such as Stryker (SYK) and Boston Scientific (BSX) reported EPS growth of 13% and 38.5%, respectively. Abbott Laboratories (ABT) registered an EPS decline of 59.3%.

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