Key Takeaways:
Current Price: $134 Price Target: $150 NEW (prior PT $124)
Position Size: 2.66% TTM Performance: +28%
- 1Q sales (ending July 2021) came at +19%, and +27% if adjusting for the extra selling week last year
- Segment results:
- Cardiovascular: +15% growth
- The company gained 300bps market share in the Cardiac Rhythm Management market thanks to its Micra pacemaker
- MedSurg: +25% growth
- Continued global procedures recovery
- Hugo robot : initial urology cases performed in Latin America, supporting regulatory approvals globally (US trials starting soon, CE Mark pending)
- Neuroscience: +26% growth
- Capital equipment business is doing well, a sign that hospital capex spending continues to recover
- Diabetes: sales down 3%
- Delay in new pump launch in the US
- Has lost market share in that category in past years as competitors introduced new products, innovation should help going forward
- Delta variant expected to have a slight negative impact on business, explaining the small change in guidance.
- Covid had an impact on August numbers so far, and the trend should persist into September
- Expecting peak in hospitalizations form covid in September, then easing in October with vaccinations peaking back up
- Operating margin came ahead of expectations at 28.3%, ahead of its guidance of 27-27.5% – but ramping up on investments in renal denervation and Hugo robot will be a ~$400M headwind this year
- The management team is raising the lower end of its EPS full-year guidance from $5.60 – $5.75 to $5.65 – $5.75. Organic revenue growth guidance remains +9%
- Cardio: 10-11%
- Med Surg: 8-9%
- Neuroscience 10-11%
- Diabetes flat
- Medtronic will hold its first ESG Analyst Day in October, a first for the company
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
Julie S. Praline
Director, Equity Analyst
Direct: 617.226.0025
Fax: 617.523.8118
Crestwood Advisors
One Liberty Square
Suite 500
Boston, MA 02109