Medtronic (MDT) Q1 Earnings: Stock Likely To Beat Again?

We expect Ireland-based medical device major Medtronic plc (NYSE:MDT) to beat expectations when it reports first-quarter and fiscal 2018 results on Aug 22, before the opening bell.

Last quarter, the company posted earnings of $1.33 per share, surpassing the Zacks Consensus Estimate by 2 cents. In fact, Medtronic’s earnings outpaced the Zacks Consensus Estimate in all of the past four quarters with an average beat of 1.33%. Let’s see how things are shaping up prior to this announcement.

Why a Likely Positive Surprise?

Our proven model shows that Medtronic is likely to beat earnings because it has the perfect combination of two key ingredients.

Zacks ESP: Medtronic has an Earnings ESP of +0.93% as the Most Accurate estimate of $1.09 is higher than the Zacks Consensus Estimate of $1.08. A favorable Zacks ESP serves as a meaningful and leading indicator of a likely positive earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Medtronic currently carries a Zacks Rank #3 (Hold). Note that stocks with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 have a significantly higher chance of beating earnings estimates.

Conversely, we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

The combination of a favorable Zacks Rank and a positive ESP makes us reasonably confident of an earnings beat.

Medtronic PLC Price and EPS Surprise

Medtronic PLC Price and EPS Surprise | Medtronic PLC Quote

What is Driving the Better-than-Expected Earnings?

We look forward to another quarter of solid growth on successful execution of its three growth strategies, therapy innovation, globalization and economic value for Medtronic. Combined with the demographics of an aging population, these positives have started to open up opportunities for Medtronic, which should get reflected in the first quarter as well.

Within therapy innovation, there have been multiple developments. Under the Cardiac and vascular group, new therapies are helping the company gain traction in the rapidly growing MedTech markets such as left ventricular assist device (LVAD), transcatheter aortic valve replacement (TAVR), drug-coated balloons, atrial fibrillation ablation and insertable diagnostics.

Within cardiac rhythm implantables, the company is fast capturing market share on its differentiated 3T MRI technology. Within TAVR, we expect Medtronic to register strong growth in the quarter on the back of the FDA approval for the extended use of its self-expanding CoreValve Evolut TAVR platform in July 2017. With this approval, patients with symptomatic severe aortic stenosis and at an intermediate risk for open-heart surgery will be eligible for treatment using the technology.

In coronary, Medtronic has been seeing weak Drug Eluting stent (DES) performance, particularly in the United States. Per management, the FDA approval of the Resolute Onyx DES in May 2017 put a check on the decline in U.S. DES sales by fiscal 2018. Also, Medtronic has started selling Resolute Onyx DES in the high-growth Japan market from Jul 10, as per a Cardiovascular Business report released on Jul 7. These developments buoy optimism and strengthen our belief for strong quarterly performance by the company in first-quarter fiscal 2018.

Over the recent past, the company has been witnessing soft sequential performance in its diabetes business owing to the anticipated full launch of the MiniMed 670G hybrid closed loop system. In June 2017, Medtronic announced the U.S. launch of the MiniMed 670G system for type 1 diabetes. This should reflect in the company’s top line from the first-quarter fiscal 2018.

In June 2017, Medtronic announced a new outcomes-based agreement with Aetna (NYSE:AET) for type 1 and type 2 diabetes patients currently on multiple daily insulin injections. This development may also start contributing to the company's diabetes business in near term.

Also, within the brain therapy space, under the Restorative Therapies Group business, the company saw encouraging developments. Medtronic announced the receipt of Health Canada licence for SureTune 3 software for deep brain stimulation (DBS) in June 2017. The latest innovations in the SureTune technology allow for more precise, efficient treatment while also improving patient management with centralized data storage for easy reference. The company received CE Mark for its SureTune software for deep brain stimulation in the same month.

The company’s estimate revision trend for the fiscal first quarter has also been positive. In the past seven days, one analyst moved north, with no movement in the opposite direction. However, the magnitude of the estimate revision trend with earnings estimates remained at $1.08 over the same time frame.

Medtronic has provided its initial fiscal 2018 revenues and EPS guidance. The company expects full-year revenue growth in the range of 4% to 5% at CER. Foreign currency fluctuation is expected to have a positive $75 million to $175 million impact in the fiscal. Fiscal 2018 adjusted earnings per share are expected to grow 9% to 10% at CER. Currency translation will negatively impact full-year earnings by approximately 5 cents to 10 cents, including the 3 cents to 5 cents impact in the first-quarter fiscal 2018.

With Medtronic gaining a significant portion of its sales from the international market, currency fluctuations are a major concern. This has been a dampener for the company over the last few quarters. Considering this, for first-quarter fiscal 2018, Medtronic anticipates currency headwind to affect revenues by $10 million to $60 million.

Other Stocks to Consider

Here are some other companies you may want to consider as our proven model shows they have the right combination of elements to post an earnings beat in the upcoming quarter:

Big Lots, Inc. (NYSE:BIG) has an Earnings ESP of +6.56% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Best Buy Co., Inc. (NYSE:BBY) has an Earnings ESP of +1.59% and a Zacks Rank #2.

Bank of Montreal (TO:BMO) has an Earnings ESP of +1.95% and a Zacks Rank #2.

4 Surprising Tech Stocks to Keep an Eye on

Tech stocks have been a major force behind the market’s record highs, but picking the best ones to buy can be tough. There’s a simple way to invest in the success of the entire sector. Zacks has just released a Special Report revealing one thing tech companies literally cannot function without. More importantly, it reveals 4 top stocks set to skyrocket on increasing demand for these devices. I encourage you to get the report now – before the next wave of innovations really takes off.

See Stocks Now>>