Medtronics (MDT) 2Q FY19: continuation of 1Q FY19 growth trend

Current Price: $92.8 Price Target: $100

Position Size: 3.11% TTM Performance: +14.5%

Key Takeaways:

Medtronic released their 2Q FY19 results this morning. MDT had an impressive +7.5% organic growth, thanks to +27.5% upside in Diabetes (mini pump demand), but also high growth in brain & pain therapies. EPS grew 13% y/y. Operating margins improved 80bps (ex-FX) thanks to company-wide savings. The company is raising its FY19 organic growth guidance by 50bps (+5.0-5.5%) based on the 1st half good results, as well as key pipeline products expected to drive growth in 2H19. But due to China tariffs, M&A dilution and FX impact, it is maintaining its EPS guidance for the year. Looking forward to FY 2020, Medtronic expects the launch of a surgical robot, helping sustain good top line growth. Overall this was another good quarter for the company, and the CEO sounded very upbeat on the pipeline potential for the company going forward, with a goal to innovate more but also disrupt the market.

MDT Thesis:

· Stands to benefit from secular trends (1) increased utilization from Obamacare (2) developed populations age

· Strong balance sheet and cash flows. Increased access to non-cash should allow MDT to meaningfully increase their dividend

· 6% normalized Real Cash yield provides solid total return profile over next 2-3 years

· Ownership interest aligned. Management incentivized to maximize shareholder returns – 14% 10yr average ROIC

[tag MDT]

Julie S. Praline

Director, Equity Analyst

Direct: 617.226.0025

Fax: 617.523.8118

Crestwood Advisors

One Liberty Square

Suite 500

Boston, MA 02109

www.crestwoodadvisors.com