On Jun 3, 2016, we issued an updated research report on Medtronic plc MDT. The company ended fiscal 2016 on a promising note with fourth-quarter earnings and revenues both surpassing the Zacks Consensus Estimate.
Foreign exchange headwinds still remained significant, negatively impacting revenues by $179 million. However, the company’s expectation of not-so-substantial currency headwinds in fiscal 2017 boosts our confidence in the stock. For fiscal 2017, Medtronic expects currency headwinds to the tune of approximately $25−$75 million based on current exchange rates on revenues.
The consolidated company has successfully demonstrated strong segmental performances, reflecting successful integration and achievement of synergy targets. All four major business groups contributed to solid top-line growth on above-market revenue growth which, according to the company, highlighted sustainability across groups and regions.
According to management, the Covidien integration is on track and is meaningfully accelerating all three fundamental growth strategies of Medtronic – therapy innovation, globalization and economic value. In fiscal 2016, the company delivered $355 million related to Covidien integration synergies, contributing 440 basis points to its EPS leverage.
Medtronic is resorting to all possible means to boost growth. This includes penetration in emerging markets, expansion of its portfolio and restructuring of initiatives. These should benefit the company over the long term. We are also encouraged by Medtronic’s recent foray into the rapidly growing transcatheter mitral valve replacement (TMVR) market through its recently completed $458 million acquisition of California-based medical device start-up firm, Twelve, Inc.
However, on the flip side, we note that the company is currently entangled in multiple legal issues which are weighing on the bottom line. Moreover, a soft economy and tough competition headwinds keep us on the sidelines.
At present, Medtronic retains a Zacks Rank #3 (Hold).
Key Picks in the Sector
Some medical product stocks worth a look are Boston Scientific Corporation BSX, ICU Medical, Inc. ICUI and LeMaitre Vascular, Inc. LMAT. All three stocks carry a Zacks Rank #2 (Buy).
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