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Medtronic (MDT) Rides on Innovation, Rising Costs a Woe

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On Jul 6, we issued an updated research report on Medtronic plc MDT. While we are encouraged by the company’s global accepted advanced therapies, its escalating costs and expenses raise concerns. The stock has a Zacks Rank #3 (Hold).

Over the past three months, shares of Medtronic have outperformed the industry. The stock has grown 9.2% compared with the industry’s 8.8% rise.

Notably, Medtronic exited fiscal 2018 on a solid note with better-than-expected fourth-quarter performances. All major business groups contributed to its solid top-line growth at CER, highlighting sustainability across groups and regions in addition to displaying a successful integration and achievement of synergy targets. Also, a gradually stabilizing Cardiac Rhythm & Heart Failure (CRHF) market buoys optimism on the stock.

The receipt of FDA approval for the DBS (Deep Brain Stimulation) therapy as an adjunctive treatment to reduce partial-onset seizures raises hope for the company in the target medical market. Medtronic is also focusing on geographical diversification of its businesses. The company is highly positive about its foray into the $1-billion standalone CGM (continuous glucose monitoring) market with its Guardian Connect.

We are currently upbeat about the latest FDA nod to its MiniMed 670G system for patients with type 1 diabetes between seven and 13 years of age.

Significantly, Medtronic’s new restructuring initiative — Enterprise Excellence plan — is aimed at $3-billion annual growth run rate savings by the end of fiscal 2022. Per the company, this new program has been designed to increase its effectiveness and growth-related reinvestment ability along with providing a consistent boost to its margin expansion as well as driving the EPS leverage.

On the flip side, the company has been exposed to steep costs and expenses, weighing heavily on its margins. Also, its 2019 guidance remains conservative on the apprehension of lackluster Cardiac and Vascular Group (CVG) plus Minimally Invasive Therapies Group (MITG) performances. This in turn, dampens investors’ confidence in the stock.

Key Picks

A few better-ranked stocks in the broader medical sector are Genomic Health GHDX, Align Technology, Inc. ALGN and Stryker Corporation SYK.

Genomic Health has an expected earnings growth rate of 187.5% for the quarter to be reported. The stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Align Technology has a projected long-term earnings growth rate of 28.4% and a Zacks Rank #2 (Buy).

Stryker has an estimated long-term earnings growth rate of 9.7% and a Zacks Rank of 2.

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Medtronic PLC (MDT) : Free Stock Analysis Report
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