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Medtronic (MDT) Sees a Mixed Q1, New Products Bode Well

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On Aug 25, we issued an updated research report on Medtronic plc (MDT - Free Report) .

Medtronic exited the fiscal first quarter on a mixed note, with earnings exceeding the Zacks Consensus Estimate and revenues missing the same. Over the last three months, Medtronic has underperformed the broader industry. The company has witnessed a decline in its share price since the release of quarterly results. Per the last share price movement, the company has lost 6.2%, as against the broader industry’s 0.8% gain over the last three months.

Moreover, escalating costs and expenses are weighing on margins. Also, unfavorable foreign exchange continues to remain a drag.

On a positive note, apart from displaying successful integration and achievement of synergy targets, Medtronic’s major business groups continue to contribute to top-line growth which highlighted sustainability across all segments and geographies. Recently, the company announced the receipt of CE Mark for Attain Stability Quad MRI SureScan Active-Fixation heart lead. We are also encouraged by the solid growth trend, continuing in the United States as well as the healthy global acceptance of its advanced therapies.

Moreover, a consistent and gradually stabilizing movement in the global Cardiac Rhythm & Heart Failure (CRHF) market can be observed. This should improve further in the coming quarters.

We are also looking forward to Medtronic to receive $6 billion in cash for the Patient Monitoring & Recovery (PMR) division divestment, which will strengthen the company’s position to make further developmental investments.

.Meanwhile, post the Covidien acquisition, the consolidated company has so far successfully demonstrated strong segmental performance, reflecting successful integration and achievement of synergy targets.

This apart, we note that despite facing severe macroeconomic pressure, Medtronic saw 12% growth in the emerging markets in the last reported quarter which contributed nearly 14% to the company’s overall revenues. Despite strong growth, the figure was in line with the company’s double-digit growth projections for the long term.

The company is currently resorting to all possible means to boost growth. This includes penetrating the emerging markets, expansion of portfolio and restructuring of initiatives. These should benefit Medtronic over the long term. We are also encouraged by its foray into the rapidly growing transcatheter mitral valve replacement market through its $458-million acquisition of California-based medical device start-up Twelve, Inc.

At present, Medtronic carries a Zacks Rank #4 (Sell).

Key Picks

A few better-ranked medical stocks are Edwards Lifesciences Corporation (EW - Free Report) , IDEXX Laboratories, Inc. (IDXX - Free Report) and Lantheus Holdings, Inc. (LNTH - Free Report) . Edwards Lifesciences sports a Zacks Rank #1 (Strong Buy), while Lantheus Holdings and IDEXX Laboratories carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Edwards Lifesciences has a long-term expected earnings growth rate of 15.2%. The stock has rallied roughly 20.4% over the last six months.

Lantheus Holdings has a long-term expected earnings growth rate of 12.5%. The stock has gained 26.9% over the last six months.

IDEXX Laboratories has a long-term expected earnings growth rate of 19.8%. The stock has gained around 2.3% over the last six months.

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