Needham has adjusted its valuation on Medtronic, Inc., trimming the firm's price target to $120 from $121 while leaving its Buy recommendation intact. The analyst action follows Medtronic's fiscal third-quarter results for 2026, which Needham said topped consensus expectations on both revenue and earnings per share.
Company management held steady on its full-year 2026 revenue and EPS guidance, according to Needham's note. Organic revenue growth accelerated to 6.0% in the third quarter, up from 5.5% in the second quarter, with the improvement driven by the Cardiovascular and Diabetes segments.
Despite the top-line beat, Medtronic reported margin deterioration on a non-GAAP basis. The third-quarter non-GAAP gross margin contracted by 170 basis points year-over-year, while the non-GAAP operating margin declined by 210 basis points year-over-year. Needham attributed the margin compression to an unfavorable product mix, tariffs, and higher costs that more than offset beneficial currency moves, pricing, and operating expense leverage.
Needham characterizes Medtronic as being in the early phases of what it expects to be a strong product cycle, a dynamic that the firm believes will support faster organic revenue expansion. The analyst noted that the improved organic growth in the quarter lends support to that view. At the same time, Needham said the slight reduction in its price target reflects somewhat lower calendar year 2027 EPS estimates.
Recent quarter details
Medtronic's fiscal third-quarter financials exceeded analyst forecasts on key metrics. Reported EPS reached $1.36 compared with a consensus forecast of $1.34. Revenue was $9.0 billion versus an expected $8.91 billion. Even with these beats, Medtronic's shares moved lower in pre-market trading, signaling investor caution. Company commentary during the earnings call highlighted solid financial results, though market reaction was mixed, and observers continue to watch Medtronic's financial position and competitive standing.
Implications
- The modest target cut reflects a small downward revision to 2027 EPS assumptions rather than a change in the firm's view of Medtronic's longer-term prospects.
- Improved organic growth driven by Cardiovascular and Diabetes offers potential momentum for revenue expansion if the product cycle develops as Needham expects.
- Near-term margin headwinds from mix, tariffs, and cost pressures remain a balancing factor against revenue strength.