Medtronic, Inc. (MDT) is balanced currently in terms of performance following its strong third quarter fiscal 2010 results. The earnings estimate revision for the company also demonstrated a mixed trend in the past seven days after its results were posted. This satisfies our Neutral recommendation for the stock with a Zacks #3 Rank.

Quarterly Results

Medtronic recently reported third quarter fiscal 2010 earnings per share of 77 cents, beating the Zacks Consensus Estimate of 76 cents and the year-ago earnings of 71 cents.

Total revenues in the third quarter increased 10% year over year to $3.851 billion. Medtronic witnessed sales growth across all its seven business segments. Cardiac Rhythm Disease Management (CRDM) revenues increased 6% year over year to $1.243 billion, driven by strong demand for implantable cardioverter defibrillators (ICDs). Spinal revenues increased 1% year over year to $842 million. Growth was fueled by a higher demand for Biologics products.

CardioVascular revenues increased 28% year over year to $722 million. The increase in revenues can be attributed to strong sales growth across the company’s Coronary, Structural Heart Disease and Endovascular segments.

Neuromodulation revenues increased 11% year over year to $394 million, primarily due to higher sales of Activa PC, RC Deep Brain Stimulation systems and InterStim Therapy products.

Diabetes, Surgical Technologies and Physio-Control revenues increased 12%, 15% and 11% year over year to $311 million, $239 million and $100 million, respectively.

Geographically, U.S. sales contributed roughly 58% to total revenues and increased approximately 3.0% year over year. International sales increased 22% year over year.

Gross margin in the third quarter increased 60 basis points (bps) year over year to 76.3%. Research and development expenses (excluding IPR&D charges) declined 70 bps year over year to 8.9% of sales. Selling, general and administrative expenses declined 150 bps year over year to 34.5% of sales.

Medtronic ended the third quarter with cash, cash equivalents and short-term investments of $2.292 billion, an increase of approximately 37% in the first nine months of fiscal 2010. The company had an outstanding long-term debt of $6.396 billion at the end of the reported quarter. Cash flow from operations and free cash flow were $1.488 billion and $1.365 billion, respectively, for the third quarter.

Earnings Estimate Revision Trend

Earnings estimate revisions for Medtronic demonstrate a mixed trend in the past seven days. During the period, only one out of the panel of 27 analysts has downgraded his earnings estimate for the fourth quarter of fiscal 2010. During the period, only one out of 32 analysts upgraded his earnings estimate for fiscal 2011. 

However, the earnings estimate revision for Medtronic has an uptrend in the past 30 days. During the period, twelve out of 27 analysts have upgraded their earnings estimates while only four have downgraded theirs for the fourth quarter of fiscal 2010. For the first quarter of fiscal 2011, four out of seventeen analysts have upgraded their earnings estimates while only two have downgraded theirs.

During the past 30 days, 21 out of 28 analysts have upgraded their earnings estimates while only one has downgraded his estimate for fiscal 2010. For fiscal 2011, nine out of 32 analysts have upgraded their earnings estimates while only five have downgraded theirs.

Outlook

Medtronic has revised its earnings per share guidance for fiscal 2010. For the year, earnings per share are expected in the range of $3.20 to $3.22, compared to the prior guidance of $3.17 to $3.22.

Medtronic expects total revenues in the fourth quarter of fiscal 2010 to grow between 5% and 8% at constant currency.

Medtronic has a number of products in its pipeline, which are expected to be launched soon. The company expects to receive the CE mark approval for its Restore sensor, expects to launch the Advisa MRI pacemaker outside the US, balloon kyphoplasty in Japan, and a new step platform in Europe called integrity among others.

Medtronic is one of the world’s leading medical technology companies, specializing in implantable and interventional therapy devices and products. The company’s main competitors include St. Jude Medical (STJ) and Boston Scientific Corporation (BSX).

Read the full analyst report on “MDT”
Read the full analyst report on “STJ”
Read the full analyst report on “BSX”
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