Medtronic Stock Rises After Earnings. What Caught Investors’ Attention.

Medtronic posted fiscal second-quarter earnings and revenue that beat analysts’ expectations. (Courtesy Medtronic)

Key Points

• Medtronic exceeds fiscal second-quarter earnings and revenue expectations.
• The company raises its fiscal 2026 revenue growth outlook to approximately 5.5% and adjusted earnings guidance to $5.62 to $5.66 a share.
• Medtronic said the volume of medical procedures was “robust.” That is a positive because the company sells surgical tools, plus devices that treat heart conditions, diabetes, and other conditions.

Medtronic shares took off after the company posted better financial results than expected, boosted by what management called a “robust” volume of medical procedures.

The stock was up 4.3% on Tuesday, bringing the gain so far this year to 26%.

Medtronic sells surgical tools, plus medical devices that treat heart conditions, diabetes, and a range of other conditions, so it benefits when hospitals do more medical procedures. Investors have closely tracked volumes at Medtronic and its peers since the pandemic, which led to delays in many nonessential surgeries.

When hospitals returned to operating normally, that unsatisfied demand led to a surge in elective procedures that resulted in higher-than-expected medical costs for insurers. Earnings of manage-care companies suffered as a result.

Medtronic CEO Geoff Martha told Barron’s on Tuesday that procedure growth had found a new normal. “Coming out of Covid, if you go back a couple years, procedure growth came out pretty hot, and there was a little bit of pent-up demand,” he said. “I think we’re in a pretty steady state right now, with healthy procedural growth.”

That is good news for Medtronic, but could raise new worries for the insurers. If the volume of procedures is steadily increasing even now that the Covid-19 backlog has been addressed, it could mean that the rate of increases in medical costs won’t be slowing down soon.

Revenue for Medtronic’s fiscal second quarter was $9 billion, up 6.6% on a reported basis from the same quarter last year, and better than the $8.9 billion consensus estimate. Non-GAAP diluted earnings were $1.36 per share, better than the $1.31 Wall Street expected.

The company also raised its financial guidance for 2026, saying it now expects non-GAAP earnings of between $5.62 and $5.66 a share, up from management’s prior forecast of between $5.60 and $5.66 per share. The current FactSet consensus estimate is $5.63 per share.

Management expects organic revenue growth of approximately 5.5%, up from its prior guidance of 5%.

A highlight was the company’s cardiovascular segment, where sales for the quarter were $3.4 billion, beating the $3.3 billion FactSet consensus estimate. Sales of the company’s cardiac ablation products, a set of treatments for the heart condition atrial fibrillation, were up 71% compared with the same quarter last year. That growth was driven by a new technological approach called pulsed field ablation.

The company said Tuesday that its cardiac ablation products have a “near-term line of sight” to adding $1 billion in revenue to its base business.

In addition to cardiac ablation, Martha pointed to the company’s overactive-bladder business. The company launched a new product for overactive bladder called Altaviva.

“This quarter was nice, but the back half should be even higher,” Martha told Barron’s. “It’s supported by entering these big new markets.”

Hospital stocks have been hit in recent weeks by the growing certainty that Congress won’t extend the Affordable Care Act subsidies that made insurance plans sold on the Obamacare exchanges more affordable for many Americans. Martha said that the company isn’t counting on the subsidies being extended.

“It doesn’t impact as much,” Martha said. “It’s not been a big issue for us.”

In its fiscal first quarter, Medtronic posted adjusted earnings and revenue that topped analysts’ forecasts, though the market’s reaction indicated the numbers failed to impress following an earlier flurry of interest in the stock.

The interest was partially driven by the disclosure of a stake in the company by Elliott Investment Management, a New York-based fund manager known for investing in companies to drive stock performance.

Chief Financial Officer Thierry Piéton told Barron’s last quarter that Medtronic was expecting a stronger second half of the year.

Write to Josh Nathan-Kazis at josh.nathan-kazis@barrons.com and Mackenzie Tatananni at mackenzie.tatananni@barrons.com