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Leading medical devices player, Medtronic (MDT - Analyst Report) announced its decision to raise more than $1 billion of funds consisting of $675 million of 3.125% senior (due 2022) and $400 million of 4.5% senior notes (due 2042). The company plans to use the funds for working capital and general corporate purposes, besides repayment of debts.

Medtronic exited the latest quarter with $1.19 billion in cash and cash equivalents, lower than $1.38 billion at the end of fiscal 2011. Free cash flow remained robust with over $1 billion generated during the most recent quarter. While the majority of the cash balance remains outside US, the company is working to improve its US cash flows.

Meanwhile, Medtronic has set a target of returning 50% of free cash flow to shareholders in the form of dividends and share buybacks. A better-than-expected share repurchase activity could further drive the bottom line of the company. Meanwhile, having witnessed strong contribution from products that came from acquisitions, the company will be in the look out for suitable tuck-in acquisitions with a product suite that is immediately accretive.

Meaningful acquisitions made over the last few quarters include Ardian, Invatec, Osteotech and ATS Medical. These businesses are already contributing to the company’s growth profile and are expected to be a larger force going forward.

We are impressed with Medtronic’s focus on suitable acquisitions, restructuring efforts, and expansion in the emerging markets in a scenario where its core segments, consisting of defibrillators and spinal implants, have been recording declining sales. Emerging markets recorded 20% growth during the most recent quarter, a trend that is expected to continue into 2012. Collectively, India, Brazil and China having grown nearly 20% annually over the past four years, with health care becoming a national priority, now represent 10% of total revenues.

The company however experiences tough competition with the presence of players such as Boston Scientific (BSX - Analyst Report) and St Jude Medical (STJ - Analyst Report).

Longer term, we have a Neutral recommendation on Medtronic. The stock retains a Zacks #3 Rank (“Hold”) in the short term.

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