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Medtronic's Mazor Robotics Aid Growth, Rising Costs Ail

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On Feb 28, we issued an updated research report on Medtronic plc (MDT - Free Report) . While we are encouraged by the company’s globally accepted advanced therapies, its escalating costs and expenses, however, raise concerns. The stock has a Zacks Rank #3 (Hold).

Over the past six months, shares of Medtronic have outperformed the industry. The stock has rallied 15.5% compared with its industry’s 7.2% rise.

Medtronic posted better-than-expected earnings in third-quarter fiscal 2019. All major business groups contributed to solid top-line growth at CER, which highlighted sustainability across groups and regions in addition to displaying a successful achievement of synergy targets. We are encouraged by the company’s solid growth trend in the United States after adjusting for its divestitures as well as a healthy global acceptance of its advanced therapies.

This apart, the company has been seeing certain favorable developments in its Diabetes business. Medtronic is highly positive about its foray into the $1-billion standalone CGM market with its Guardian Connect.

Meanwhile, we are optimistic about the recently-closed acquisition of Mazor Robotics, which is expected to fortify Medtronic's position in spine surgery space. Following the completion of this transaction, the company has launched the Mazor X Stealth Edition robotics guidance platform in January and has already received a positive feedback for this combination of best-in-class robotics and navigation capability.

Also, the gradually stabilizing Cardiac Rhythm & Heart Failure (CRHF) market holds a lot of promise. Although, in the reported quarter, the company registered a year-over-year loss in this business, there was mid-single-digit growth in pacemakers, banking on the strength of Micra transcatheter pacing system and the Azure wireless pacemaker.

We are currently hopeful about the company’s newly-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 enabled reinvestment for growth along with driving a consistent margin expansion and EPS leverage.

On the flip side, the company has been grappling with steep costs and expenses, weighing heavily on its bottom line.

Key Picks

Some better-ranked stocks in the broader medical space are ABIOMED, Inc., (ABMD - Free Report) , Varian Medical Systems, Inc. (VAR - Free Report) and Masimo, Inc. (MASI - Free Report) . Notably, each stock currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

ABIOMED’s long-term earnings growth rate is expected to be 27.67%.

Varian’s long-term earnings growth rate is projected to be 8.00%.

Masimo’s long-term earnings is projected to grow 15.60%.

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