With the focus to strengthen its presence in China,
) inaugurated its Innovation Center in Shanghai, the first outside
the US and Europe. This is in sync with the company's strategy to
create local product research and development in that region. This
center will collaborate with the global teams, local physicians,
universities and research institutes to provide solutions for
Globalization is a strategic driver of growth for the company.
The immense potential for growth can be attributed to the increase
in wealth as well as healthcare becoming a government priority in
the markets of many emerging countries.
According to the recently reported first quarter results,
Medtronic derived 44% of its total sales from the international
market, which climbed 6% year over year at constant exchange rate
or CER to reach $1.781 billion. As a result of the company's focus
on the emerging markets, revenues from this region experienced
continued growth momentum and increased 14% at CER to $438
This region now represents 11% of total company revenues. The
company is confident about maintaining the growth momentum in this
region, which over the next 3-4 years should contribute 20% to
Considering growth in China is the fastest among the emerging
countries, Medtronic strategically plans to boost its employee
strength there. Within the next decade, China will be the largest
health care market in the world, outpacing the US. The company
plans to hire another 1000 people over the next five years, of
which many will work on the product development platform within the
Medtronic is focusing on the emerging markets primarily to
offset the hindrances it faces in two of its largest markets - US
defibrillators and US spinal implants. We are encouraged with the
company's portfolio expansion strategies. However, contributions
from new products are not significant yet to drive top-line growth.
The company's recently launched Resolute Integrity in the US has
enabled it to gain 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 during the first quarter. These headwinds have also adversely
affected the company's peers including
St Jude Medical
We have a Neutral recommendation on Medtronic. The stock retains
a Zacks #3 Rank (Hold) in the short term.
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