Back to top

Analyst Blog

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.

Please login to Zacks.com or register to post a comment.

New to Zacks?

Start Here

Zacks Investment Research

Close

Are you a new Zacks Member or a visitor to Zacks.com?

Top Zacks Features

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Zacks.com. Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
TRIQUINT SE… TQNT 20.67 +6.52%
RF MICRO DE… RFMD 12.47 +6.04%
VASCO DATA… VDSI 14.77 +4.68%
STRATTEC SE… STRT 80.24 +3.00%
PATTERSON-U… PTEN 34.54 +2.98%