Analyst Note| Debbie S. Wang |
Medtronic delivered disappointing fiscal second-quarter results, and we’re lowering our fair value estimate to $112 per share, down from $122, after adjusting our full-year and fiscal 2024 estimates downward. In the second quarter, the firm faced challenges that have dragged down growth, some of which were specific to the firm and others that have affected the entire industry. In the former bucket, Medtronic struggled with supply shortages in surgical innovations, delayed U.S. regulatory approval of the 780g insulin pump, and battery replacement headwinds in neuromodulation. In the latter bucket, unfavorable foreign exchange rate changes, higher input costs, hospital staffing issues that have pulled down procedure volume, and China’s volume based procurement, or VBP, program have also put pressure on Medtronic. Considering these issues are unlikely to resolve themselves within the next few quarters, we’ve pulled back our projections for fiscal 2023-24. Despite these short-term hurdles, we think Medtronic’s wide economic moat remains intact, as its intangible assets and switching costs have not weakened, in our view.