Back to top

Image: Shutterstock

Medtronic (MDT) Cardiovascular Business Expands Amid Macro Woes

Read MoreHide Full Article

Medtronic (MDT - Free Report) is gaining market share in its Cardiovascular business. However, macroeconomic concerns put pressure on margins. The stock carries a Zacks Rank #3 (Hold) currently.

Medtronic is strongly expanding its global foothold in the Cardiovascular business (consisting of nearly 37% of the company’s total revenues in fiscal 2024). Within Cardiovascular, Cardiac Rhythm Management, one of Medtronic’s largest businesses, and the Cardiac Pacing business continued to drive strong growth (up 20% in the fiscal fourth quarter) following the launch of the company’s next-generation Micra AV2and VR2 devices in the United States.

Within Structural Heart in Cardiovascular, the company looks forward to market share gain on strong Transcatheter Aortic Valve Replacement (TAVR) prospects. According to Medtronic, TAVR is one of the largest growth drivers for the company, and it expects the market, which was roughly $5.5 billion in 2023, to exceed $7 billion within the next three years and reach $10 billion in the next five years. In the fiscal fourth quarter, despite healthcare staffing challenges, the Structural Heart business grew 5.8% organically. The company won TAVR share globally on the strength of Evolut FX. As a major development, in the fiscal fourth quarter, Medtronic received FDA approval for Evolut FX Plus, the company’s newest TAVR valve.

Meanwhile, Medtronic, in fiscal 2024, generated nearly 54% of its revenues from the rest of the world. The company is particularly witnessing broad-based growth across the world. In the fiscal fourth quarter, non-US developed markets grew in mid-single-digits, including 7% growth in Western Europe and 5% growth in Japan. The company is now more focused on expansion in emerging markets to address the massively unmet and untapped demand for advanced medical technologies. In the reported quarter, emerging markets grew 13% organically. Despite the adverse impact of the volume-based procurement (VBP) effect in China, there was double-digit growth in the fiscal fourth quarter.

For the Hugo surgical robot, the company is scaling manufacturing production, expanding regulatory approvals and ramping up installations for continued progress internationally. Within Structural Heart, Medtronic is gaining from the launch of Evolut FX in Japan and Europe.

On the flip side, with regard to procedural volumes, in addition to an incremental China VBP, the company is still seeing lower volumes in elective coronary PCI, GI procedures, TAVR, spinal cord stim and some less emergent surgical procedures. The slower-than-anticipated recovery in procedural volumes primarily occurred in developed markets as healthcare systems continued to work through staffing and other challenges.

Further, like its peers, Medtronic is currently affected by the industry-wide increase in costs and expenses stemming from geopolitical concerns. Although inflation has stabilized a bit during the fiscal fourth quarter, it is still higher than the historical trend. The continued increase in raw material and labor costs, as well as oil price volatility, are denting the company’s profit. Further, rising interest rates are leading to increased borrowing costs, which is concerning.

In the fourth quarter of fiscal 2024, the gross margin contracted 56 basis points to 64.6% on a 2.1% rise in the cost of revenues. Further, selling, general and administrative expenses rose 5.7% year over year. Adjusted operating margin contracted 251 bps year over year to 24.5%.

With Medtronic recording a significant portion of its 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, as in the case of other important MedTech players, too. Medtronic expects its fiscal 2025 first-quarter revenues to witness an unfavorable impact of $85 million to $135 million from currency translation.

Key Picks

Some better-ranked stocks in the broader medical space are Hims & Hers Health (HIMS - Free Report) , Medpace (MEDP - Free Report) and ResMed (RMD - Free Report) , presently sporting a Zacks Rank #1 (Strong Buy) each. You can see the complete list of today’s Zacks Rank #1 stocks here.

Hims & Hers Heath stock has surged 136.7% in the past year. Estimates for the company’s earnings have risen from 11 cents to 18 cents for 2024 and from 25 cents to 33 cents for 2025 in the past 30 days.

HIMS’ earnings beat estimates in three of the trailing four quarters and missed in one, delivering an average surprise of 79.2%. In the last reported quarter, it posted an earnings surprise of a staggering 150%.

Estimates for Medpace’s 2024 earnings per share have moved up to $11.29 from $11.23 in the past 30 days. Shares of the company have surged 85.6% in the past year compared with the industry’s 4.9% growth.

MEDP’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 12.8%. In the last reported quarter, it delivered an earnings surprise of 30.6%.

Estimates for ResMed’s fiscal 2024 earnings per share have moved to $7.70 from $7.64 in the past 30 days. Shares of the company have declined 3.9% in the past year against the industry’s rise of 3.2%.

RMD’s earnings surpassed estimates in three of the trailing four quarters and missed in one, the average surprise being 2.8%. In the last reported quarter, it delivered an earnings surprise of 10.9%.

Published in