On Mar 4, 2015, we issued an updated research report on Medtronic, Inc. MDT. We are upbeat about the completion of the long-waited acquisition of Covidien by Medtronic, Inc. which has led to the formation of a new holding company, Medtronic plc, based in Ireland. Shortly after the completion, the legacy Medtronic also released better-than-expected fiscal third quarter results, marking the end of its solo quarterly performances.
According to Medtronic, the recently completed Covidien acquisition is fully aligned with the company’s mission of alleviating pain, restoring health, and extending life for patients globally. The transaction is expected to meaningfully accelerate all three fundamental growth strategies of the legacy Medtronic – therapy innovation, globalization, and economic value.
It is also expected to bolster the long-term sustainability and consistency of the company’s revenue growth expectations. Finally, the combined company should generate significant free cash flow, a substantial percentage of which can be deployed with much greater flexibility. This cash flow will ensure better investment in U.S. healthcare technologies as well as enhanced shareholder returns.
Medtronic is resorting to all possible means to boost growth. This includes penetration into emerging markets, expansion of portfolio and restructuring of initiatives, which should benefit the company over the long term.
However, on the tepid side, margin pressure poses a major cause of worry. Also, the recently implemented corporate tax-reform has played truant on Medtronic’s corporate inversion motto. Although Medtronic has gone forward with the Covidien acquisition, its initial motive of achieving tax-related benefits has not been fulfilled. Moreover, headwinds such as unfavorable currency movement, global economic uncertainties and a tough competitive landscape persist at the moment.
Key Picks in the Sector
Abaxis, Inc. ABAX, Vascular Solutions Inc. VASC and Cardiovascular Systems Inc. CSII are a few medical stocks that appear well placed over the short term.
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