On Friday, Truist Securities adjusted its outlook on Medtronic , Inc. (NYSE:MDT) shares, reducing the price target to $88 from $90 while maintaining a Hold rating on the stock.
The adjustment follows Medtronic's fourth fiscal quarter report, which featured a revenue beat but an operating margin (OM) miss that resulted in earnings per share (EPS) that only slightly exceeded consensus estimates by a cent.
The medical device company's fiscal year 2025 guidance was in line with consensus estimates for both revenue and earnings. The guidance suggests operational leverage throughout the year.
However, the forecast indicates that operating margin expansion is expected to be more pronounced in the second half of the year, relying on operational expenditure leverage despite a contraction in gross margin (GM).
This expectation has led to investor skepticism regarding the achievability of the margin guidance, contributing to a decline in Medtronic's shares by approximately 5%, compared to a 2% drop in the iShares U.S. Medical Devices ETF (IHI).
Truist Securities noted that while Medtronic's revenue guidance for fiscal year 2025 appears achievable, investors are seeking more significant earnings growth.
The upcoming fiscal year is seen as a period where the company must demonstrate its capabilities, particularly in the latter half, as investors look for evidence of leveraged EPS growth.
The analyst's comments reflect a cautious outlook on Medtronic's ability to meet its margin targets, emphasizing the importance of operational efficiency in driving earnings growth. The reduction in the price target to $88 from $90 is a response to these concerns and the performance of the company's shares in the market.
InvestingPro Insights
As Medtronic, Inc. navigates through its fiscal year with a focus on operational leverage and earnings growth, key metrics and insights from InvestingPro offer a deeper understanding of the company's financial health and market position. With a market capitalization of $108.06 billion and a solid dividend yield of 3.39%, Medtronic stands as a significant player in the Healthcare Equipment & Supplies industry. The company's commitment to shareholder returns is evident, having raised its dividend for 10 consecutive years, and maintaining dividend payments for 48 consecutive years.
InvestingPro Tips highlight Medtronic's low price volatility and liquid assets that exceed short-term obligations, suggesting a stable financial outlook. However, the company is trading at a high P/E ratio of 31.07, which may warrant attention from investors looking for near-term earnings growth. Analysts remain optimistic, predicting profitability for the year, a sentiment supported by Medtronic's performance over the last twelve months.
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