Medtronic, Inc. Earnings: Will Medical Devices Bounce Back?

Next Tuesday, Medtronic (NYSE: MDT  ) will release its quarterly report, and investors have recently sent shares of the medical-device giant to all-time record highs. Even though Medtronic and rivals Johnson & Johnson (NYSE: JNJ  ) and Boston Scientific (NYSE: BSX  ) have had to deal with rapid changes in the health-care industry, Medtronic hopes that some of the headwinds that have kept down revenue and earnings growth could finally dissipate in the near future, and that could help boost the stock even further.

Medtronic is a leader in the medical-device industry, with products ranging from cardiac pacemakers and defibrillators to stents, grafts, and other methods of supporting cardiovascular health. Yet with all the changes in health care associated with the implementation of the Affordable Care Act, Medtronic has had to adjust to budget pressures from some of its major health-care provider customers. Can Medtronic bounce back from that sluggishness? Let's take an early look at what's been happening with Medtronic over the past quarter and what we're likely to see in its report.


Source: Medtronic.

Stats on Medtronic

Analyst EPS Estimate

$1.12

Change From Year-Ago EPS

1.8%

Revenue Estimate

$4.58 billion

Change From Year-Ago Revenue

2.7%

Earnings Beats in Past 4 Quarters

2

Source: Yahoo! Finance.

What's next for Medtronic earnings?
Investors have been mostly stable in their views on Medtronic earnings in recent months, just clipping a single penny per share from their views for the 2015 fiscal year. The stock has kept climbing, with a rise of almost 7% since mid-February.

Medtronic's fiscal third-quarter report showed some of the challenges that the company faces in the current health-care environment. Revenue rose 3.4%, with emerging markets sales soaring 12% to help lift Medtronic's overall results. But adjusted net income dropped 3% due to the loss of tax incentives, costs from Obamacare, and a writedown related to the failure of a clinical trial. Those results are consistent with the difficulties that Boston Scientific and Johnson & Johnson have had in getting the growth they wanted from their respective medical-device businesses.

In particular, Medtronic has seen tough times lately in the cardiac rhythm management industry, as European sales have slowed and competition from Boston Scientific and other players has intensified. For its part, Medtronic has introduced smaller heart monitors to unlock new growth opportunities. But with Boston Scientific getting approval for new devices, Medtronic has to make sure its research and development efforts keep up with its peers in order to sustain its grip on the market.

MiniMed 530G. Source: Medtronic.

But one area of great potential is Medtronic's diabetes division, which saw revenue jump 16% last quarter. With the introduction of its MiniMed 530G artificial pancreas system, Medtronic is focusing on a disease that has seen a huge rise in incidence. Johnson & Johnson is attempting to make an artificial pancreas that goes further than the MiniMed, but Medtronic's first-mover advantage could give it an important leg up in drawing and keeping new customers.

In the Medtronic earnings report, watch to see where the medical-device maker sees its greatest opportunities going forward. If the health-care industry finally loosens its purse strings and starts spending on equipment again, then Medtronic is in a good position to compete against Johnson & Johnson and Boston Scientific for its fair share of the resulting revenue.

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