We recently reinstated our Neutral recommendation on
), a leading medical devices company. While we are to-some-extent
relieved with the signs of stability in the core ICDs and
spine markets, challenges still remain in the core stent and
defibrillators businesses, we are still concerned about
Medtronic's Pacing and Spine business, which remained sluggish,
in turn affecting the company's overall performance. The stock
currently carries a Zacks Rank #3 (Hold).
Why at Neutral?
Medtronic posted an improved fourth quarter with adjusted EPS
of 93 cents, up 11% year over year and ahead of the Zacks
Consensus Estimate of 91cents. Revenues of $4.027 billion missed
the Zacks Consensus Estimate of $4.032 billion but were up 4% at
Constant Exchange Rate or CER.
Management confirmed that both the core ICDs and spine markets
are gradually stabilizing, which will result in easier
comparisons and should improve growth over the coming quarters.
Although the worldwide ICD revenues declined 2% year over year,
it was slightly better compared with the overall market. In
addition, the ICD implant volumes grew 5% in the reported
Added to that, the company encouragingly noted that despite
the declining trend in the European ICD market (by mid-single
digits) due to deteriorating pricing in some key markets, it
successfully gained share in this region. We believe that the
trend would improve on a range of new product launches including
the Evera ICD with increased longevity and advanced shock
reduction technology, and the Viva CRT-D with adaptive CRT for
significantly better response rate.
However, we remain concerned about Medtronic's Pacing and
Spine business, which continued to remain sluggish, in turn
affecting the company's overall performance. Moreover, headwinds
such as unfavorable currency movement and global economic
Other Stocks to Consider
While we prefer to remain on the sidelines on Medtronic, other
medical devices stocks worth a look are
Medical Action Industries Inc.
). All these stocks carry a Zacks Rank #1 (Strong Buy).
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