We recently reinstated our Neutral recommendation on
). While we are, to some extent, relieved with signs of stability
following improvement in Medtronic's core Cardiac Rhythm Disease
Management (CRDM) and pacing segments, challenges still loom
large in the spine market which remains sluggish, affecting the
company's overall performance. The stock currently carries a
Zacks Rank #3 (Hold).
After a disappointing start to fiscal 2014, Medtronic managed
to beat estimates in the second quarter of the year. The
company reported adjusted earnings per share (EPS) of 91 cents,
up 3% year over year and a penny ahead of the Zacks Consensus
Estimate. Revenues came in at $4.194 billion, up 3.3% at CER,
beating the Zacks Consensus Estimate of $4.173 billion.
We are encouraged by the improvement observed in Medtronic's
core CRDM and pacing segments. The company also witnessed strong
CoreValve transcatheter aortic heart valve sales in the
international market. This led the upside in its Structural Heart
business. We are also impressed with several recent growth
initiatives taken by Medtronic which includes the company's
attempt to rebuild itself as a health care service provider.
On the tepid side, gross margin pressure still remains a major
concern. Spine sales continued its sluggish trend. Moreover,
headwinds such as unfavorable currency movement and global
economic uncertainties remain.
We are also concerned about the recent U.S. Food and Drug
Administration's (FDA) warning regarding certain Medtronic
devices. As per the announcement, the company's recently
initiated voluntary field action related to certain guidewires
were classified as a Class I recall by FDA.
However, Medtronic is resorting to all possible means to boost
growth. This includes penetration into the international markets,
expansion of portfolio and restructuring of initiatives, which
should benefit the company over the long term.
Meanwhile, Medtronic has increased its focus on the emerging
markets and is targeting higher revenues from this region. The
company is also committed to its aim of returning 50% of its free
cash flow to its shareholders, along with undertaking suitable
acquisitions, to augment growth.
Other Stocks to Consider
While we prefer to remain on the sidelines regarding Medtronic
at present, some better-ranked medical stocks worth a look
). While Cepheid and CryoLife sport a Zacks Rank #1 (Strong Buy),
AngioDynamics carries a Zacks Rank #2 (Buy).
ANGIODYNAMICS (ANGO): Free Stock Analysis
CEPHEID INC (CPHD): Free Stock Analysis
CRYOLIFE INC (CRY): Free Stock Analysis
MEDTRONIC (MDT): Free Stock Analysis Report
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