Medtronic (MDT) is scheduled to report their fiscal first quarter 2010 results before the market opens on Tuesday, August 25. Based on our analysis, we at EarningsPreviews.com are expecting MDT to report better than expected results that exceed Wall Street’s consensus expectations.

Analyst Expectations

We are forecasting revenues of $3.83 billion and EPS of $.80. This would represent a 3% increase in revenues from last year’s $3.71 billion in the same period. The current analyst consensus estimates calls for revenues of $3.81 billion and EPS of $.78. On May 19, the company provided fiscal year 2010 EPS guidance of $3.10 - $3.20.

Wall Street’s estimates don’t appear to be taking into account the recent stabilization that we are seeing the economic environment. While Medtronic still faces strong headwinds, we are expecting a relatively flat sequential performance from what we saw last quarter.

Though concerns remain regarding President Obama’s healthcare reforms, we believe that the impact to Medtronic would be minimal in most scenarios. Currently the company already generates 38% of their revenues from outside the United States. Many of these international markets already support public healthcare options that are more rigid than those proposed by the White House administration.

Stock Performance

Since the beginning of 2009, Medtronic’s shares have gained over 19% and have significantly outperformed the 6% gain in the Dow Jones industrial average. Last year, MDT’s stock fell 37% and underperformed the 34% drop in the Dow Jones industrial average.

Valuation

Shares are now trading at 11x consensus fiscal 2011 EPS estimates. This is a discount to the relative valuations of their peer group. With stabilizing economic conditions, we would expect Medtronic to be able to deliver results at the high end of their guidance range.  

Recommendation: Buy with a $45 price target.