This is a case of three strikes and you get downgraded.

On Friday, Needham analyst Mike Matson reacted to Medtronic’s revenue and earnings-per-share miss by publishing a research note that downgraded the medtech behemoth’s stock to a “hold” from a “buy.” Just a day earlier, the Dublin-based firm announced that its fiscal fourth-quarter revenue was $8.09 billion, up 1.4% from the same quarter a year ago, but analysts were expecting $8.44 billion. At $1.52, earnings per share in the fourth quarter also fell short of analyst expectations by four cents.

Looking ahead, the company’s executives provided a revenue growth guidance of 4%-to-5%, which translates to between $31.9 billion to $32.3 billion in annual revenue for fiscal year 2023 whereas equity research analysts had calculated $33.2 billion, wrote Matson in a research note.

The revenue and EPS miss along with lowered estimates was one among a few reasons that prompted Matson to lower his recommendation on the stock. This is what he wrote to Needham’s investor clients on Friday:

“[Medtronic] continues to have execution challenges, and this is its third strike in our view, with the first being pipeline challenges including the [renal denervation] and robotics delays and the second being the Diabetes warning letter.”

Is the company experiencing a bit of a deja vu when it comes to renal denervation? Medtronic paid a pretty penny ($800 million back in 2010) to purchase Ardian for its renal denervation system through which an implanted device delivers mild electrical pulses to the renal artery to lower blood pressure that cannot be managed with multiple hypertension drugs. In 2014, the company surprised many by announcing that its pivotal trial testing the Symplicity renal denervation system failed to meet its primary clinical endpoint. It was no better than the sham treatment.

After a pause, Medtronic began studying renal denervation again. However, in October, the company revealed through a regulatory filing that an interim analysis shows the system could not outperform the sham treatment. So hopes of an early FDA approval flitted away. Other trials have shown the product does have clinical value but the company has to wait for pivotal trial data to know whether the October announcement was just an anomaly.

This situation is what Matson is calling Medtronic’s “first strike.”

The second transgression is related to Medtronic’s robot-assisted surgery system, Hugo. In November, the company revealed that the broader launch of the product is delayed because of supply chain and manufacturing issues. That translates to lower revenue – the medtech firm had expected revenue of $50-$100 million in the fiscal year that just ended on April 29 had Hugo’s launch stayed on track.

The third strike was Medtronic missing revenue and EPS expectations in its fourth fiscal quarter announced on Thursday. In his research note, Matson pointed out that others seem to be more adept at managing the current supply chain disruptions at whose feet Medtronic’s executives lay the blame for the lackluster financial performance yesterday.

“While we understand that some macro issues are outside of management’s control, [Medtronic’s peers seem to be navigating the same challenging environment more successfully. [Medtronic] seems to have returned to its old pattern of poor execution and inconsistent result…,” Matson pointed out. “Guidance implies a steep ramp in both revenue and EPS growth during FY23, and while we understand that comps get progressively easier, we still view the annual guidance as challenging.”

In other words, Matson doesn’t fully buy the financial guidance that company executives are providing for the next fiscal year. Still the report wasn’t all negative as Matson acknowledged that the stock has been resilient.

“While [Medtronic] shares are down 4% year-to-date (year-to-date), they have significantly outperformed our universe, which is down 23% YTD, and the S&P 500, which is down 15% YTD,” he said.

In early afternoon trading, Medtronic’s stock was down 1.28% to $98.17.

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