Jason Clark — value investing specialist and a contributing editor to The Prudent Speculator — reviews a pair of leading medical device makers.

Unlike many of our healthcare holdings, it’s been a tough 12 months for medical device Medtronic PLC (MDT) shares, which are now down nearly 30% over the period), as supply chain issues continue to be a major headwind. The firm also suffered as its Renal Denervation Procedure (RDN), which is designed to reduce hypertension, failed to meet its primary endpoint.

Despite the bumps in the road, we remain patient while MDT takes measures to sort through regulatory and supply chain hurdles, the latter including co-location of employees with suppliers and sourcing materials from sub-tier suppliers to remove middlemen.

We continue to think Medtronic’s competitive position is intact, and given the slide shares now trade in line with a market multiple for a company that has historically held roughly 50% market share in its core heart device business. It is also the leader in spinal products, insulin pumps, and neuromodulators for chronic pain.

At the time of the latest earnings release, management continued to project organic top-line growth between 4% and 5% and adjusted EPS in the range of $5.53 to $5.65. The dividend yield is 3.3% and our Target Price for MDT is $131.

Zimmer Biomet (ZBH) earned $1.58 per share in Q3, compared with the analyst consensus estimate of $1.56. Revenue for the medical equipment maker was $1.67 billion, versus the $1.64 billion consensus.

Although Zimmer was challenged by supply chain issues, inflation, staffing limitations and procedure cancellations, the company managed to turn in a good quarter thanks to momentum in the large-joint business and growth in the knee franchise.

Zimmer’s currency headwinds are likely to persist and management believes innovation and more emphasis on non-elective procedures is a way to keep revenue and earnings growing (albeit modestly).

We appreciate ZBH’s efforts to rework its product lineup with cutting edge technology like its ZBEdge ecosystem, a suite of integrated digital and robotic technologies, and the momentum built for its ROSA Robotics equipment.

We continue to like Zimmer’s global revenue stream (even if gets knocked in the near term by accounting rules) and expect to see benefits from the company’s product diversification. With some pent-up demand for elective surgeries put off during COVID still likely to provide a boost, our Target Price now stands at $162.

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