MDT Stock Crashes To Two-Year Low On Sales Lag — Is There A Silver Lining?

Medtronic (MDT) early Tuesday reported mixed earnings and lighter-than-expected organic sales growth, leading MDT stock to tumble.




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During the fiscal second quarter, adjusted Medtronic earnings of $1.30 per share fell 2% year over year but topped expectations by two cents, according to FactSet. Sales dipped 3% on a strict, as-reported basis to $7.59 billion. But analysts had projected nearly $7.7 billion.

The company also lowered its earnings guidance for the year.

“Our expectations were low for the quarter, but the results were still a disappointment,” Edward Jones analyst John Boylan said in a report. “However, this is not where our focus lies as we believe the drivers for this quarter’s issues should resolve themselves over time and most are not unique to Medtronic.”

In early trading on today’s stock market, MDT stock toppled 5.3% near 77.90. Shares opened at their lowest point since March 2020.

MDT Stock: TAVR, Diabetes Offer Bright Spots

Organically, sales increased just 2% and missed Medtronic’s guidance for 3% to 3.5% growth, Evercore ISI analyst Vijay Kumar said in a report. The main source of the decline were the medical-surgical and cardiovascular group businesses. Sales in both came in below expectations.

But Kumar noted bright spots in the quarter included Medtronic’s nonsurgical method of replacing a faulty heart valve and the diabetes business. Sales of transcatheter aortic heart valve replacement, or TAVR, devices grew by a midteens percentage. Diabetes devices sales slid 5% on a reported basis with a double-digit decline in the U.S. due to no new product approvals. But organic sales inched up 3%.

Kumar kept his outperform rating and 105 price target on MDT stock.

The diabetes business has been under pressure. In late 2021, the Food and Drug Administration issued a warning letter following an inspection of Medtronic’s diabetes unit. The company is still working on a next-generation continuous glucose monitor called Simplera and is hoping for approval of a new insulin pump dubbed 780G.

“If the warning letter is removed, a 780G approval and Simplera launch could turn this segment into high single-digit growth,” Kumar said.

Is Robotic Surgery Next?

Edward Jones’ Boylan is also watching Medtronic’s efforts in robotics with a surgical device called Hugo. Hugo helps physicians perform some surgeries. Orders in markets where the robot is approved appear solid. Medtronic is working toward FDA approval.

“These developments, combined with internal improvements we see, should eventually return Medtronic to sales and earnings growth,” he said. “Having said that, the recovery has taken longer and with more bumps in the road than we expected but continue to believe patience will be rewarded.”

He doesn’t believe that outlook is reflected in MDT stock today.

For the second half of its fiscal year, Medtronic expects 3.5% to 4% organic sales growth, accelerating from the first half of the year. But the company cut its adjusted earnings outlook for the full year and now sees $5.25 to $5.30 per share. Three months ago, the company guided to adjusted profit of $5.53 to $5.65 a share.

Follow Allison Gatlin on Twitter at @IBD_AGatlin.

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