It’s a three-hit situation and you’re downgraded.
On Friday, Needham analyst Mike Matson issued a research note downgrading the healthtech giant’s stock to “hold” from “buy” in response to Medtronic’s revenue and per-share Earnings error. Just a day earlier, the Dublin-based company announced fourth-quarter revenue of $8.09 billion, up 1.4% from a year earlier, but analysts had expected $8.44 billion. Fourth-quarter earnings per share of $1.52 also missed analysts’ estimates by 4 cents.
Looking ahead, the company’s executives provided guidance for 4% to 5% revenue growth, implying annual revenue of between $31.9 billion and $32.3 billion in fiscal 2023, while equity research analysts calculated revenue of $33.2 billion, Matson wrote in a study note.
Declining revenue and EPS, as well as lower estimates, are among several reasons that prompted Matson to lower its recommendation on the stock. Here’s his Friday letter to Needham’s investor clients:
“[Medtronic] Continuing to face execution challenges, we believe this is its third hit, the first being pipeline challenges, including [renal denervation] And robotics delays, the second is diabetes warning letters. “
Does the company have a bit of déjà vu when it comes to denervation? Medtronic paid a lot of money ($800 million in 2010) Buy Ardian Used in the renal denervation system, through which the implanted device delivers gentle electrical impulses to the renal arteries to lower blood pressure uncontrolled by many hypertension medications. In 2014, the company surprised many by announcing its pivotal trial of Symplicity renal denervation failed to meet its primary clinical endpoint. This is no better than a fake treatment.
After a hiatus, Medtronic returned to work on denervation.However, in October, the company passed Regulatory filing An interim analysis showed that the system could not outperform the sham treatment. As a result, hopes of early FDA approval were dashed.Other tests have shown this product does have clinical value But the company will have to wait for key trial data to know if the October announcement was just an anomaly.
This situation is what Matson calls Medtronic’s “pre-emptive strike.”
The second violation was related to Medtronic’s robotic-assisted surgery system, Hugo. In November, the company revealed, Broader product launch delayed Because of supply chain and manufacturing issues. That means lower revenue — the med-tech company expects to hit $5 billion to $100 million in its fiscal year that just ended on April 29, if Hugo’s rollout remains on track.
The third strike came when Medtronic missed estimates on fiscal fourth-quarter revenue and earnings per share announced on Thursday. Others appear to be better at managing the current supply chain disruptions, which Medtronic executives blamed for yesterday’s poor financial performance, Matson noted in his research note.
“While we know some macro issues are beyond management’s control, [Medtronic’s peers seem to be navigating the same challenging environment more successfully. [Medtronic] There seems to be a return to the old pattern of poor execution and inconsistent results…” Matson noted. “Guidance implies a sharp uptick in both revenue and EPS growth in FY23, and while we know it’s getting easier to compensate, we Still think annual guidance is challenging. “
In other words, Matson isn’t entirely convinced of the financial guidance company executives are offering for the next fiscal year. Still, the report wasn’t all negative, as Matson acknowledged the stock’s resilience.
“although [Medtronic] Shares are down 4% year-to-date (YTD), and they are significantly outperforming our universe, which is down 23% YTD versus 15% for the S&P 500,” he said.
Medtronic shares were down 1.28% at $98.17 in early afternoon trade.
Photo: junce, Getty Images
