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Medtronic in Hosp. Solution Business

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Of late, MedTech giant Medtronic Inc. (MDT - Free Report) announced its intention to make a strategic shift from a device manufacturer to a provider of broader healthcare services and solutions, with meaningful clinical and economic values. As a part of this plan, the company recently formed a hospital solutions business to develop strategic partnerships with hospitals, in order to increase operational efficiencies while minimizing costs.

At the beginning, this Medtronic Hospital Solutions will focus on European catheterization laboratory (cath lab) facilities so as to increase efficiencies, especially in critical areas of hospital cardiology departments. In this regard, the first two long-term tenders of the company’s Hospital Solutions business have been offered to two leading hospitals in Europe. Under these tenders, Medtronic will administer four University Hospital of South Manchester (UHSM) NHS Trust cath labs at Wythenshawe Hospital and five Imperial College Healthcare cath labs based at Hammersmith Hospital.

In order to further its efforts, the company also purchased a 30% equity stake in NGC Medical SpA (NGC) that manages outsourced cath labs in Italy. Per the agreement, Medtronic will help expand NGC’s business outside Italy. According to the company, this investment will remain neutral to Medtronic’s fiscal 2014 earnings and will also be consistent with its disciplined focus on long-term returns.

Medtronic is confident about the success of its newly evolving role. The MedTech industry is currently plagued by several issues, including pricing concerns, hospital admission and procedural volume pressure, Medicare reimbursement issues, and regulatory overhang. Thus these efforts are expected to help the company to harness its strengths and diversify offerings.

We note that, as an opening move in this broader direction, on Aug 12, the company acquired privately-held Cardiocom, a provider of integrated tele-health and patient services for chronic disease management, for a total consideration of $200 million.

We are impressed with Medtronic’s decision to diversify its business in order to cope with the dynamic medical and healthcare market. Further, the strong guidance for the ongoing fiscal boosts confidence. The company’s focus on portfolio expansion to drive revenues from emerging markets appears impressive.

Medtronic currently carries a Zacks Rank #3 (Hold). Other medical sector stocks that warrant a look are Alere Inc. and Affymetrix Inc. . These stocks carry a Zacks Rank #1 (Strong Buy). Medtronic’s major peer in the medical device set, St. Jude Medical , currently holding a Zacks Rank #2 (Buy), also looks attractive.

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