Medtronic (MDT, Financial) saw a decline of 2% as sellers dominated despite the company exceeding top and bottom line expectations for Q2 and raising its FY25 guidance. The stock has dropped about 7% since hitting one-year highs in late October and is currently moving towards mid-August levels, seeking support at its 200-day moving average of $84.49.

Key Issue in Q2

The Cardiac Ablation Solutions (CAS) segment showed flat year-over-year sales growth, missing expectations for sequential growth. This was due to a third-party component supplier interruption, which affected new product sales. The supplier has since expanded capacity, allowing Medtronic to increase new product availability and activate new accounts. However, concerns remain about achieving double-digit growth in this segment for Q3, contributing to the selling pressure.

• Despite the CAS issue, Medtronic showed consistency in Q2. EPS increased by 1% year-over-year to $1.26, surpassing analyst estimates for the tenth consecutive quarter. Revenues grew by 5% to $8.4 billion, accelerating from the previous quarter's 3% growth and exceeding consensus for the eighth straight quarter.
• Growth was evident across Medtronic's highest growth (20% of revenues), established market (50%), and synergistic businesses (30%). In the highest growth category, which includes CAS, total revenues rose 8%, driven by Structural Heart, Diabetes, and Hypertension divisions. The established market, crucial to Medtronic's financial model, saw mid-single digit sales growth, supported by Cranial & Spinal Technologies and Cardiac Rhythm Management. Synergistic businesses grew at a similar rate, highlighted by Neuromodulation.
• Medtronic is optimistic about its diversified growth, raising its FY25 EPS outlook to $5.44-5.50 from $5.42-5.50 and increasing its organic revenue growth forecast to 4.75-5.00% from 4.50-5.00%. A promising area is Hypertension, as it is a leading cause of cardiovascular disease globally, providing a market for the company's Simplicity blood pressure procedure.

Medtronic is renowned for its consistent quarterly performances, with Q2 being no different. However, there is some investor dissatisfaction due to the missed CAS sales growth forecast. Additionally, with many of Medtronic's devices reliant on Medicare reimbursement, potential cuts could impact future growth. Nonetheless, Medtronic remains a noteworthy healthcare stock due to its established reputation, potential for acquisitions, and stable 3.3% annual dividend yield.