On Jun 4, 2015, we issued an updated research report on Medtronic plc MDT. Medtronic handily outpaced the Zacks Consensus Estimate of both earnings and revenues in the fourth quarter of fiscal 2015. This combined company (post the legacy Medtronic and Covidien merger) in its first full quarter of consolidated business, has successfully demonstrated strong segmental performances reflecting successful integration and synergy targets.
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. According to the company, these strategies aim to create a competitive advantage for Medtronic by capitalizing on the three long-term trends of healthcare. These include the desire to improve clinical outcomes using technology, the growing demand for expanded access to healthcare in developing countries and the optimization of cost efficiency in healthcare systems, including the move to value-based healthcare.
As planned, the combined company is currently focusing on the execution of its three growth strategies, 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 will 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, the corporate tax-reform has played truant on Medtronic’s corporate inversion motto. Although Medtronic has successfully completed 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, legal issues and a tough competitive landscape linger over the short term.
Key Picks in the Sector
At the moment, Medtronic retains a Zacks Rank #3 (Hold). Some better-ranked companies worth reckoning are Bio-Rad Laboratories, Inc. BIO, Hospira Inc. HSP and Vascular Solutions Inc. VASC. All the three stocks sport a Zacks Rank #1 (Strong Buy).
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