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We recently reinstated our Neutral recommendation on Medtronic, Inc. (MDT - Analyst Report), a leading medical devices company. While we are to-some-extent relieved with the signs of stability in the  core ICDs and spine markets, challenges still remain in the core stent and defibrillators businesses, we are still concerned about Medtronic’s Pacing and Spine business, which remained sluggish, in turn affecting the company’s overall performance. The stock currently carries a Zacks Rank #3 (Hold).

Why at Neutral?

Medtronic posted an improved fourth quarter with adjusted EPS of 93 cents, up 11% year over year and ahead of the Zacks Consensus Estimate of 91cents. Revenues of $4.027 billion missed the Zacks Consensus Estimate of $4.032 billion but were up 4% at Constant Exchange Rate or CER.

Management confirmed that both the core ICDs and spine markets are gradually stabilizing, which will result in easier comparisons and should improve growth over the coming quarters. Although the worldwide ICD revenues declined 2% year over year, it was slightly better compared with the overall market. In addition, the ICD implant volumes grew 5% in the reported quarter. 

Added to that, the company encouragingly noted that despite the declining trend in the European ICD market (by mid-single digits) due to deteriorating pricing in some key markets, it successfully gained share in this region. We believe that the trend would improve on a range of new product launches including the Evera ICD with increased longevity and advanced shock reduction technology, and the Viva CRT-D with adaptive CRT for significantly better response rate.

However, we remain concerned about Medtronic’s Pacing and Spine business, which continued to remain sluggish, in turn affecting the company’s overall performance. Moreover, headwinds such as unfavorable currency movement and global economic uncertainties remain.

Other Stocks to Consider

While we prefer to remain on the sidelines on Medtronic, other medical devices stocks worth a look are Medical Action Industries Inc. , Given Imaging and Cyberonics Inc. (CYBX - Analyst Report). All these stocks carry a Zacks Rank #1 (Strong Buy).

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