Medtronic (MDT) PT, Estimates Lowered at Evercore ISI
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Evercore ISI cut estimates and its price target on Medtronic, Inc. (NYSE: MDT) to $80.00 (from $94.00) but maintained a Buy rating following Q2 results.
FY 2017 EPS goes from $4.70 to $4.56, FY 2018 EPS from $5.25 to $5.00 and FY 2019 EPS from $5.85 to $5.50.
Analyst Vijay Kumar commented, "he thesis that MDT was a safe haven name in troubled times took a beating post a revenue miss (in line EPS) and a guidance reduction. The headline numbers were soft across the board, organic growth decelerated ~200 bps sequentially (or ~$150 MM). With the stock now trading at a 2x P/E discount to the market, the key question for investors are: 1) Were there one off items in the Q that impacted results and how soon can it reverse? 2) Did the thesis of mid singles top-line (including M&A) and double digit EPS change? 3) What is the right multiple to pay for MDT? On the revenue front, we think that ~half (or $75 MM) of impact were transitory, timing related issues – with TAVR large valve being approved & impending approval of Intermediate Risk, and upcoming 670G launch in Diabetes gives us confidence in revenues coming back over the next 3 to 6 months. Additionally, the UK impact due to movement towards national procurement within CRM seems timing transitory (3-6 months impact). The factors that could drag beyond 6 months include DES (stents – where MDT is losing share to BSX), replacement headwinds within CRM (could persist for another 4 Qs – see below for our reasoning), EM weakness (Saudi Arabia was down 40%) and competitive impact from re-sealers as potential pain points (won’t be resolved until launch of new products). As such, we think organic topline could get to >3% normalizing for timing related issues (TAVR, Diabetes, UK procurement), and on constant currency basis (including M&A) topline could bounce back to >4% over the next 3 to 6 months. Beyond 12 months, as we annualize against some of the above mentioned non-transient issues, organic could go >4% (with CC revenues ~5% including M&A). Given this view, while we acknowledge that today was a painful day for investors, we think MDT shares have found a bottom at ~15x forward CY EPS. While shares could lag in the near term until investors get confidence in the above picture we have laid out, eventually we see shares bouncing back. With this risk reward scenario as the backdrop, we reiterate our Buy rating of MDT shares."
Shares of Medtronic, Inc. closed at $80.58 yesterday.
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