Key Takeaways:
Current Price: $118 Price Target: $124 (NEW, increased from $121)
Position Size: 2.72% TTM Performance: +2.2%
- 3Q sales (ending January 2021) declined 1% due to December and January resurgence of Covid cases, impacting non-essential surgeries. This wave of covid cases was the worst they have experienced since the beginning of the health crisis
- In terms of geographies, emerging markets were up slightly (+0.8%) with growth in Latin America, Southeast Asia and China (up mid-single-digits), while the US declined 2% and Western Europe down LSD
- Continued market share gains from Boston Scientific exiting the TAVR market, although sales were down MSD (VS flat for competitor EW)
- Ventilator sales high (triple from last year) but softening somewhat – respiratory & patient monitoring grew in the mid-30%
- Pumps in Diabetes was a key driver to growth – segment grew 1%, a sign this business might finally be turning the corner
- Sales of capital equipment for elective surgeries were at a record level this past quarter, which the CEO considers a “really strong leading indicator that hospitals are ramping up in the US for a rapid recovery”
- CEO quotes:
- “we’re seeing it in many hospitals, depends where you are, we’re seeing a snapback” of elective surgeries.
- “when we couldn’t meet with doctors, I was amazed at how digital [technology] came to the rescue”
- 430 bps sequential improvement in operating margin despite covid impact in December and January, thanks to better control of SG&A expenses
- Capital allocation: continues their tuck-in acquisitions with RIST Neurovascular (the 8th one since January 2020 – for a total value of $1.7B) – and we should expect more to come
- Still no guidance for the year, but expect Q4 to improve throughout the quarter, with organic sales up 30-34%, and sequential margin improvement thanks to top line growth
- Overall we think MDT is on track to accelerate its growth going forward as we come out of the pandemic (thanks to market share gains & new launches), despite the delays caused by covid.
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
Category: Equity Earnings
Tag: MDT
$MDT.US