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Medtronic to Grow on Strong Fundamentals, High Costs a Woe

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On Apr 3, we issued an updated research report on Medtronic plc (MDT - Free Report) . While we are encouraged by the global acceptance of the company’s advanced therapies, its escalating costs and expenses raise concerns. The company has a Zacks Rank #3 (Hold).

On a positive note, we are upbeat about Medtronic’s recently-launched restructuring initiative called Enterprise Excellence plan, aimed at $3-billion annual growth run rate savings by the end of fiscal 2022. Per the company, this new program has been designed to increase its effectiveness and growth-related reinvestment ability along with a consistent boost to margin expansion and driving the EPS leverage.

Also, a gradually stabilizing movement witnessed in the global Cardiac Rhythm & Heart Failure (CRHF) market bodes well for further improvement in the coming quarters.


Meanwhile, at the end of third-quarter fiscal 2018, Medtronic noted that it has successfully met its $850 million Covidien synergy commitments in time. Significantly, this comes under one of the company’s four priorities, which is, ‘optimize’. Per this commitment, Medtronic has started to deliver $225-$250 million in cost synergies and $850 million in annual savings by the end of fiscal 2018.

On the flip side, shares of Medtronic have underperformed the broader industry over the past three months. The stock has lost 8% versus the broader industry’s 2.5% gain.

The company has been exposed to escalating costs and expenses, weighing heavily on its margins. Its reiteration of 2018 guidance despite a favorable foreign currency translation forecast dampens investors’ confidence in the stock.

Key Picks

A few better-ranked stocks in the broader medical sector are Bio-Rad Laboratories (BIO - Free Report) , athenahealth, Inc. and Edwards Lifesciences Corporation (EW - Free Report) .

Bio-Rad Laboratories sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here. It has a long-term expected earnings growth rate of 20%.

athenahealth is a Zacks #1 Ranked player. It has a long-term expected earnings growth rate of 21.5%.

Edwards Lifesciences has a long-term expected earnings growth rate of 15.1% and a Zacks Rank #2 (Buy).

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