Medtronic: A Value In Medical Equipment

Medtronic PLC (MDT) released fiscal Q1 financial results that beat analyst estimates on both top and bottom lines, suggests value investing specialist Chris Quigley, contributing editor to The Prudent Speculator.

The medical device maker reported adjusted EPS of $0.62 (vs. $0.22 est.) and revenue of $6.5 billion (vs. $5.5 billion est.), although both figures were below those of the prior year.

Year-over-year declines were a result of reduced elective surgical volumes, although management states the recovery (7.0% and 8.5% sequential earnings and revenue growth, respectively) from the depths of the pandemic in April has been faster than expected.

Medtronic experienced low-to-mid teen revenue declines in its Cardiac & Vascular, Minimally Invasive, and Restorative Therapies businesses, and a 5% decline in Diabetes.

Management continues to avoid providing formal annual or quarterly financial guidance given the uncertainty on near-term financial results caused by the COVID-19 pandemic.

While the operating environment is still far from ideal, we are encouraged that procedure volumes are trending back in the right direction.

We like the company’s diverse portfolio, as it seems to continuously offer up new products to keep the growth engine going as older products mature.

And we point out that Medtronic’s solid financial position is supporting increases in research & development spending (9.5% in the current quarter over Q4) despite recent revenue declines.

One example of this spending is a partnership with Blackstone Life Sciences to invest $337 million aimed at advancing new, innovative products designed to reduce the burden of diabetes management.

With domestic demographic trends in its favor, its products and pipeline, including treatments for atrial fibrillation, aortic stenosis, and various neurological disorders, are a major asset. Shares yield 2.2%, and our target price has been adjusted upward to $123.

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