Expect a Break to the Upside for Medtronic Stock

Medtronic (NYSE: MDT) delivered a double beat on its quarterly earnings call, but after the stock charged ahead on the day of the report, it’s been trading in a range on a significantly lighter volume. With MDT stock approaching its 52-week high, this is usually a time when a stock makes a move with some conviction. In this case, I’m betting on a bullish move higher.  

I’m not taking this call lightly. After climbing 28% in the last 12 months and 14.9% in 2021, MDT stock is trading near its 52-week high which is also an all-time high. That being said, Medtronic is a leader in the medical device sector and looks to be deserving of its premium price.  

The Virus Remains a Storyline 

In early 2020, MDT suffered a big selloff as investors rightly predicted that elective medical procedures would fall sharply due to the Covid-19 pandemic. However, once the United States received emergency use authorizations (EUAs) for three vaccine candidates, MDT stock started its steady climb higher.  

Not surprisingly then, it’s the Delta variant of Covid-19 that has some investors nervous about the short-term outlook for the stock. And in fairness, executives did say on the call that they expect revenue to be impacted by a slowdown in elective procedures in the coming quarter. However, when asked specifically for their thoughts on the effect that the Delta variant would have on its business, management took a bullish tone.  

Karen Parkhill, executive vice president, and the chief financial officer said, “...we do believe the near-term Covid impact to our business will be relatively less severe than prior waves given hospital preparedness and increasing vaccination rates around the globe.” 

If the company is accurate in its assessment that cases should begin to wane in mid-September with hospitalizations following suit, then any revenue disruption should be limited to one quarter.  

New Products On the Way 

Medtronic manufactures medical devices for three primary areas: cardiac issues, neurological/spinal conditions, and diabetes. The company has a wide-ranging portfolio of products. In the earnings report, the company noted that sales of its heart devices which make up the company’s largest source of revenue increased 19% to $2.89 billion.  

And during the call, the company also announced that it has received FDA approval for its Evolut FX TAVR system. This is an “expanding transcatheter aortic valve replacement system” that the company has developed as a treatment for symptomatic severe aortic stenosis.  

The company expects to launch the new product in select commercial markets this fall with a full launch scheduled for early in 2022. Since this was the first report in Medtronic’s 2022 fiscal year, the company should have the revenue to report in its fiscal 2022 year.  

Lifting its Guidance 

Medtronic also raised its full-year profit outlook. The company now expects 2022 adjusted earnings per share in the range of $5.65 to $5.75, compared with prior expectations of between $5.60 and $5.75.   

And if you’re an investor that’s concerned about a slowdown in growth, you can always take comfort in what has proven to be a rock-solid dividend. In May, Medtronic made it 44 consecutive years of increasing its dividend. And the five-cent increase put the company’s three-year dividend growth at over 25%.  

Expect an Upside Move For MDT Stock 

A solid earnings report with upgraded guidance, new products coming online, and updated guidance are three reasons I’m bullish on MDT stock. There is a downside risk if the Delta variant becomes a greater concern, particularly among the currently vaccinated. But for now it appears that will be a small bump in the road for a stock that continues to have strong upside.  

And for now, analysts share this sentiment. Since Medtronic reported results on August 23, eight analysts have increased their price target for the stock. Another analyst reiterated their rating. And in each case, the new price target was higher than where MDT stock is currently trading.