Medical-equipment maker Medtronic (NYSE:MDT) reports its fiscal second-quarter 2008 earnings results just on the other side of this weekend. Want to know what Wall Street expects to see? Read on. Want to know what really matters? Read on a bit more.

What analysts say:

  • Buy, sell, or waffle? Twenty-nine analysts take the pulse of Medtronic, giving the stock 18 buy ratings and 11 holds.
  • Revenue. Wall Street expects to see sales rise less than 1% to $3.1 billion.
  • Earnings. Profits are predicted to fall 5% to $0.56 per share.

What management says:
Medtronic had heartbreaking news for investors last month. As fellow Fool Billy Fisher explained, shares fell 11% on news that five patient deaths, possibly related to use of the firm's Sprint Fidelis defibrillation products, had forced the company to suspend distribution of the devices worldwide. Management warned us to expect $150 million to $250 million in lost revenue this quarter as a result, along with somewhere between $25 million and $40 million in charges to earnings.

On the good-news side of the equation, October also brought news that a  Food and Drug Administration advisory committee is giving Medtronic its seal of approval to compete with Boston Scientific (NYSE:BSX) and Johnson & Johnson (NYSE:JNJ) in the drug-coated stent market. That's a good sign, since the agency usually follows the committee's recommendation.

What management does:
Profitability-wise, Medtronic's margins continue to deteriorate -- albeit in slow-mo. Gross margins stuttered to a halt in their downward slide last quarter, but operating margins continued downward (although they're still plumper than the ones boasted by rivals J&J, Boston Scientific, and St. Jude Medical (NYSE:STJ)).

On the net margins line, the company has put together back-to-back quarters of trailing-12-months improvement. (But don't get too excited. The reason for this is that the firm's tax burden lightened significantly in fiscal Q4 2007, and Medtronic's trailing numbers are still enjoying the benefits of that boost.)

Margins

4/06

7/06

10/06

1/07

4/07

7/07

Gross

75.1%

74.8%

74.7%

74.6%

74.3%

74.3%

Operating

32.8%

31.6%

31.0%

30.7%

30.5%

30.4%

Net

22.6%

24.6%

22.8%

22.6%

22.8%

23.0%

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
The other big news of the quarter broke earlier this month: Medtronic has completed its $4.2 billion purchase of Kyphon. As yet another of my Foolish colleagues, Ryan Fuhrmann this time, opined, the "purchase price was high, but Kyphon has been growing more than 30% per year, and it could improve the company's growth prospects."

I agree. Before its acquisition, the unprofitable Kyphon had $530 million in trailing sales, giving it a purchase price-to-sales ratio of just less than 8. While apparently expensive relative to Medtronic's own 4.2 P/S ratio, the fact that Kyphon has been growing at more than twice the rate of its new owner more than explains the different valuations. I suspect we'll see good things out of this acquisition.

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