Medtronic stock yo-yoed Tuesday as investors weighed strength from the diabetes division against earnings growth that continues lagging rivals.
During the January quarter, sales of diabetes devices climbed 10.2% organically to $640 million. That handily beat expectations for $603.3 million, according to FactSet. But adjusted earnings came in flat and Medtronic's current price-to-earnings ratio is well below that of its peers, Evercore ISI analyst Vijay Kumar said.
He notes Medtronic is coming back from several notable setbacks for its diabetes unit and supply chain struggles.
"To make a case for multiple expansion, Medtronic needs to 'show the money' and commit to margin normalizations in a reasonable time frame," he said in a report. "If Medtronic can deliver low double-digit earnings per share (growth) consistently, Medtronic shares could rerate meaningfully."
On today's stock market, Medtronic stock rose 1.7% to 85.85. Shares are locked in a lengthy consolidation with a buy point at 92.02, MarketSmith.com shows.
Medtronic Stock: Sales, Earnings Beat
Overall, sales and earnings beat expectations.
Medtronic earned an adjusted $1.30 per share on $8.09 billion in sales. Earnings were flat, but topped expectations by four pennies. They also included a negative 11-cent hit due to exchange rates. Revenue jumped 4.7% to top forecasts for $7.95 billion. Organically, sales climbed 4.6%.
Diabetes sales drove the fiscal third-quarter beat, Evercore's Kumar said. That division includes body-worn continuous glucose monitors and insulin pumps.
"International grew midteens and U.S. grew about 4%," Kumar said. "The U.S. growth was a positive in our mind and reaffirms Medtronic coming back to market growth rates."
He noted cardiovascular group sales came in above views with 5.1% organic sales growth. Meanwhile, medical-surgical sales climbed 2.9%, in line with forecasts. Sales from the neuroscience division, which includes pain management techniques like neuromodulation, increased 4.3% organically.
The company now expects sales to grow 4.75% to 5% organically this year, up from its prior outlook for 4.75% growth. Further, Medtronic expects adjusted earnings of $5.19 to $5.21 per share, a 4-cent increase at the midpoint from the guidance it issued three months ago. That tops Medtronic stock analysts' forecast for $5.16.
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