Medtronic Expands Portfolio - Analyst Blog

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Leading medical devices player, Medtronic ( MDT ) has strengthened its growing atrial fibrillation ("AF") business as it has received both CE Mark and US Food and Drug Administration approvals for its Arctic Front Advance Cardiac Cryoballoon. This second generation system with its EvenCool Cryo technology is meant for the treatment of paroxysmal AF.

The cryoballoon treatment is a minimally invasive procedure that isolates the pulmonary vein, a possible source of erratic electrical signals that cause AF. The use of EvenCool Cryo technology enables the delivery of coolant inside the balloon, thereby making the process of isolating the pulmonary vein easier. Medtronic's Arctic Front Advance system will help physicians to better treat patients with complicated anatomies, compared to the original system.

The company has been witnessing disappointing performance from defibrillators and spinal implants in the US market, although some signs of stability are evident. Amidst this background, the double-digit growth expected in the areas of transcatheter valves, AF ablation and peripheral interventional product lines is encouraging.

During the first quarter of 2013, Medtronic's AF Solutions business grew nearly 19% globally (at constant exchange rates) with more than 30% growth in the US market driven by the strong performance of the Arctic Front cryoballoon system. The launch of the Arctic Front Advance system in both US and Europe should drive this segment further.

According to the company, AF is the most common and one of the most under treated heart rhythm disorders, affecting more than 7 million people worldwide. Furthermore, approximately half of the diagnosed AF patients fail drug therapy, and if left untreated, patients have up to a five times higher risk of stroke and an increased chance of developing heart failure. PAF results in irregular heartbeats in the upper chambers, which start and stop suddenly on their own, usually for minutes or days at a time.

Recommendation

We are encouraged by Medtronic's focus on portfolio expansion along with its aim to boost revenues from emerging markets. Moreover, recently launched Resolute drug eluting stent continued to drive market share. Meanwhile, Medtronic continues to target returning 50% of free cash flow to shareholders. However, unfavorable currency and macroeconomic uncertainties in Southern Europe adversely affected sales. These headwinds have also adversely affected the company's peers including St Jude Medical ( STJ ) and Boston Scientific ( BSX ).

We have a Neutral recommendation on Medtronic. The stock retains a Zacks #3 Rank (Hold) in the short term.


 
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: BSX , MDT , STJ

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