Medtronic: From Heart Pumps to Robots

12/10/2019 5:00 am EST


Adam Mayers

Editor, The Internet Wealth Builder and The Income Investor

Medtronic (MDT) is the world’s largest medical device company with a market cap of US $148 billion, notes Adam Mayers in his Adam Mayers Investing blog.

It is was founded in Minnesota in 1949 and gets 60% of its sales and profits outside the U.S. Medtronic employs 86,000 people of which more than 10% are research scientists. This ensures a steady stream of new products.

The company operates in four segments. Heart management devices, such as pacemakers make up 38% of sales. Stapling, wound closure products and imaging devices are another 29%.

Robots, implants and tools for things relating to the musculoskeletal system and brain are 26%. The remaining 7% is from the diabetes group which makes insulin pumps and other consumables.

Medtronic shares have increased 36.6% year-to-date and the current price of $112.47 is near its 52-week high. Medtronic is also a dividend champion. It raised its dividend with the July payment for the 42nd year in a row. The new rate yields 1.93% at current prices.

Medtronic’s latest earnings were released Nov. 19 and beat expectations for  the 14th consecutive quarter. Sales rose 3% to $7.71 billion, beating estimates of $7.66 billion. Excluding extraordinary items, the company earned $1.31 per share, topping the average estimate of $1.28. The bottom line was boosted by strong performance in its unit that makes surgical instruments.

Medtronic has been beefing up this part of its operations through acquisitions. In May, it bought Titan Spine Inc., a company that makes titanium spacers that are inserted between the vertebrae during spinal fusion surgery.

The purchase complements an acquisition of Mazor Robotics at the end of 2018. Mazor  is an Israeli specialist in robot-assisted spinal surgery. This type of surgery is a less invasive and more precise alternative to the traditional open spine surgery.

A recent Barron's article noted that Medtronic’s Micra heart pacemaker which provides pacing to a single heart chamber, can be made to treat a dual-chamber condition. Medtronic is applying for approval to do so. If it gets a go ahead it would mean sales to a much larger market.

The article said that success with Micra is an illustration of momentum at Medtronic, including a shift to faster growth and a 14-quarter string of upside earnings surprises. It continues to benefit from the trends of first world aging and emerging market growth. These tailwinds are raising sales and profits and offer investors rising dividends, safety and growth.

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