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Medtronic (MDT) Hits New 52-Week High: What's Driving It?

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Medtronic PLC’s (MDT - Free Report) shares reached a new 52-week high of $121.81 on Apr 6, before closing the session marginally lower at $121.15. The stock has gained 4.6% since its third-quarter earnings announcement on Feb 23.

The company is witnessing an uptrend in stock price, prompted by the recent slew of product approvals across business segments, which in turn is enabling it to gain strong market share. Medtronic’s ventilator production is getting a boost despite the pandemic-led mayhem. The company’s diabetes business arm holds strong prospects for the near future, which raises optimism on the stock. However, exposure to foreign exchange fluctuations and stiff competition is a concern.

Let’s delve deeper.

Key Growth Drivers

Strong Market Share Gain: We are upbeat about Medtronic gaining strong market share in an increasing number of businesses. With its pipeline coming to fruition, it is benefiting from the recent product approvals across business segments. Since the fiscal third quarter, the company has received 46 product approvals, bringing the total to more than 226 regulatory approvals in the United States, Europe, Japan and China since the start of the calendar year 2020.

In Coronary, the ongoing issue related to the China drug-eluting stent national tender, the company is currently winning share globally. In Gastrointestinal, it experienced modest share gains, driven in part by its partnership with the NHS in England. In Restorative Therapies Group, Medtronic registered share gains across several businesses. In Cranial and Spinal Technologies, while shares were flat year over year, the same was up sequentially.

Ventilator Production Gets a Boost Amid Coronavirus: On worldwide demand inflation to meet COVID-related patient needs, Medtronic has significantly ramped up ventilator production. According to the company, in the third quarter, the Respiratory Interventions business grew over 75%, primarily banking on robust ventilator sales. Ventilator sales nearly tripled year over year and the PB 980 model gained share in the high-acuity ventilator market.

Bright Diabetes Arm Prospects: Medtronic, in the fiscal third-quarter, witnessed considerable progress in turnaround efforts. The business returned to growth in the third quarter. This business is particularly gaining momentum with the successful launch of the 770G system in the United States and 780G, which is available in 26 countries across four continents. The company currently expects fiscal fourth-quarter organic growth in Diabetes in high-single digits.

Downsides

On the flip side, there are some factors that have been deterring the stock’s rally of late.

Exposure to Currency Movement: With Medtronic generating a significant portion of sales from the international market, it remains highly exposed to currency fluctuations. Unfavorable currency movements have been a major dampener over the last few quarters. Fiscal fourth-quarter EPS is expected to get adversely impacted by currency translation of 4 cents.

Competitive Landscape: The presence of a large number of players has made the medical devices market highly competitive. Medtronic earns the majority of revenues from CRDM, Spinal and Cardio Vascular segments. The company faces intense competition in the CRDM segment from players such as Boston Scientific Corporation and St. Jude Medical.

Zacks Rank and Key Picks

Currently, Medtronic carries a Zacks Rank #3 (Hold).

Some better-ranked stocks from the broader medical space include InMode Ltd. (INMD - Free Report) , Owens & Minor, Inc. (OMI - Free Report) , and Envista Holdings Corporation (NVST - Free Report) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of Zacks #1 Rank stocks here.

InMode has a projected long-term earnings growth rate of 12.4%.

Owens & Minor has a projected long-term earnings growth rate of 15%.

Envista Holdings has an expected long-term earnings growth rate of 24%.

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