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Medtronic: This Medical Apparatus Maker Can Boost Your Portfolio

May 26, 2014 | About:
rusticnomad

rusticnomad

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Medical apparatus maker Medtronic (MDT) reported some good numbers in the last quarter, which were in line with the bottom line expectations of the Street. The company had been sailing through troubled waters at the beginning of the fiscal. This was manly on account of the falling demand of its heart and spinal products in the U.S. However, it managed to pull itself up, and since then it has maintained its growth trajectory. Let us take a closer look at its performance and what are its prospects.

A look at the quarterly results

Its revenue rose 4% to $4.3 billion from the year ago period. Its new products, such as the Resolute Integrity drug-eluting stent gave Medtronic the necessary boost required to increase its growth trajectory. These products have propelled its cardiovascular business in the U.S. 24% higher since launch in February. In general terms as well, the cardiovascular business grew 10% as compared to last year and Resolute had an important role to play.

The company had increased its focus on the sales of the Revo pacemaker and the Resolute drug-eluting stent after its implantable cardioverter defibrillator (ICD) and spinal businesses declined last year. This was mainly on account of the low hospital budgets and concerns raised about the safety of its ICD device by a medical journal. But its new products have covered these damages to a great extent and helped the company to revive its growth.

Positive prospects ahead

In addition to this, its ICD market in the U.S. has been stabilizing, which is evident from the 5% sequential growth. Moreover, the company gained considerable market share in its ICD business globally. This growth was boosted by its new ICD device known as the Protecta which was launched after its previous device, the Infuse, ran into trouble. The stability of ICD is also a good sign for its peers such as Boston Scientific and St. Jude Medical. Boston Scientific had to struggle from a weak quarter released recently in which its ICD revenue fell 12%. There was no relief for St. Jude as well, as its ICD business was facing problems of low demand and safety issues.

However Medtronic’s emerging market strategy is impressive. According to CEO Omar Ishrak, the primary objective of the company was to pursue global expansion, and under his leadership, the company is moving ahead with its plans. Consequently, it saw a 7% growth in international revenue along with a 20% jump in emerging markets. Medtronic’s international sales have contributed 46% to its results, which is an improvement of around 2% as compared to the previous two quarters. It has been growing its market share in emerging regions on back of the success of its new products.

Medtronic is making tremendous effort to reduce its expenditure. The company plans to shift some of its operations to low cost regions such as India and China. Along with that, it also plans to cut 1,000 positions this year from areas such as Minneapolis and others. To make up for the downsizing, Medtronic will be adding 1,500 jobs this year in emerging markets such as China and India.

Valuation

Compared to its peers, Medtronic looks impressive. The company has a trailing P/E of 10.81, which is better than its peers such as St. Jude, Stryker, and Baxter who sport trailing P/E multiples 15.91, 14.48, and 13.2, respectively. As far as earnings growth is concerned, analysts expect Medtronic to deliver good returns in the future as shown by a forward P/E of 9.55, which is again below its peers mentioned above.

Apart from P/E ratios Medtronic has a better dividend yield as compared to its peers. It gives a dividend of 2.6%, which is matched only by Baxter and is way ahead of the 1.6% given away by Stryker. With a solid history of dividends along with stabilization of its key business and growth in emerging markets, Medtronic seems to be a good investment option.


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