Is Medtronic (NYSE: MDT) a buy?

Medtronic (MDT) is trading higher, thanks to a better-than-expected earnings call. Should you buy? Photo: Medtronic

WEST PALM BEACH, Fla., May 24, 2013 — After releasing slightly better-than-expected earnings earlier this week, Medtronic (MDT) has gained attention from investors, pushing the stock higher by 5.5%. Medtronic is the world’s largest medical technology firm, employing around 45,000 members of staff worldwide. It is engaged in medical technology, alleviating pain, restoring health, and extending life for millions of people worldwide.

The company announced that its revenue for the fourth quarter ending April 2013 was $4.459 billion, up over 5% from last year. The company now sees full year growth of $16.590 billion, up 3% to 4%. Earnings per share (EPS) for the quarter were 95 cents, up 1% from last year, giving the company an increase of 11% EPS year over year.


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Medtronic announced that its $17 billion in annual sales is now split almost evenly between international and domestic markets. International markets now account for 47% of total sales, an increase of 4% year over year, or $2.087 billion. Emerging markets, one of the areas of emphasis for Medtronic, grew 13% with that sector now delivering 12% of total company revenue.

Additionally, the company continues to produce a solid return on its revenue and shows good corporate management. It delivers profit margins over 20% and has a debt-to-assets ratio of less than 25%.

The company’s cardiovascular division, US ICDs and Spine all remain strong, as do pipeline products.

Further boosting investor interest, Medtronic announced today it finished enrolling patients in a U.S. trial of its Simplicity renal denervation system to treat high blood pressure in support of U.S. approval. The Symplicity device uses a catheter to reduce hyperactive nerves and lower blood pressure in patients who have developed other kinds of treatment resistance.


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The Centers for Medicare & Medicaid Services (CMS) and the FDA are using Symplicity as one of the first devices in a new parallel review program that will help determine nationwide coverage as part of U.S. healthcare reform.

Currently, Symplicity is approved for use in 70 countries and is under investigational device exemption in the U.S. and Japan.

The Symplicity device is an important pipeline product for Medtronic. Transcatheter valves are on track for 2015, although the 530G pump timing will be delayed due to FDA questions about insulin pump quality systems.

Medtronic shares are currently trading at about $51.53, around 15.2 times earnings.

Investor attention has garnered analyst attention as well. Oppenheimer raised its target price for Medtronic shares Wednesday from $52.00 to $57.00, and maintained its outperform rating on the stock. Citigroup increased its target price to $57.00, S&P Equity Research analysts upgraded shares of Medtronic to a buy from a hold, and Wunderlich increased the price target to $53.00 from $46.00.

However, Deutsche Bank analysts retain a hold rating on the stock, with a $51.00 price target.

Currently, fourteen equities research analysts have rated the stock a hold while eleven have assigned a buy rating. The average analyst price target for the stock is $52.71.

So what does it all mean? Medtronic is a solid, large cap company with good fundamentals and strong corporate management. It has taken measures to cut costs and improve revenue. It has strong existing products and a full pipleline.

To buy or not to buy? At 15.2 times earnings, analysts recommending a buy would seem to be making the better call. But if your price target was $51, the stock is already fully valued and you might consider it a sell.

Disclaimer: 

Positions mentioned in this article should not be construed as either buy or sell recommendations. Illustrations, charts, commentary, and analysis are only the author’s view of current or historical market activity and don’t constitute a recommendation to buy or sell any security or contract. Other individuals views, indications, and analysis aren’t necessarily predictive of any future market or government action. Rather they indicate an individual analyst’s or author’s opinion as to a range of possibilities that may occur going forward.

References to other reporters, analysts, pundits, or commentators are illustrative only and do not necessarily represent an endorsement of such individuals’ points of view. If specific investment vehicles are mentioned in any article under this column heading, the author will always fully disclose any active or contemplated investments in same.

 


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Lisa M. Ruth

Lisa M. Ruth started her career at the CIA, where she won several distinguished awards for her service and analysis.  After leaving the government, she joined a private intelligence firm in South Florida as President, where she oversaw all research, analysis and reporting.

Lisa joined CDN as a journalist in 2009 and writes extensively on intelligence, world affairs, and breaking news. She also provides investigative reporting and news analysis. Lisa continues to write both for her own columns and as a guest writer on a wide variety of subjects, and is now Executive Editor for CDN and edits the Global, Family and Health sections.  She is also a regular contributor to Newsmax and other publications.

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