Medtronic's Growth Across All Lines Aid, Rising Costs Ail

On Dec 26, we issued an updated research report on Medtronic plc (NYSE:MDT) . While we are encouraged by the company’s globally accepted advanced therapies, its escalating costs and expenses, however, raise concerns. The stock has a Zacks Rank #3 (Hold).

Over the past six months, shares of Medtronic have outperformed the industry. The stock has grown 2.7% against its industry’s 15.2% fall.

Notably, over the recent past, Medtronic has demonstrated a solid top-line improvement at CER, banking on balanced growth across its major business. This has highlighted sustainability across groups and regions in addition to displaying achievement of synergy targets. We are also upbeat about Medtronic’s strong growth trend in the United States after adjusting for the divestitures as well as the healthy global acceptance of its advanced therapies.

Also, the gradually stabilizing Cardiac Rhythm & Heart Failure (CRHF) market holds a lot of promise. Additionally, the company is focusing on the geographical diversification of its businesses. This apart, it has been seeing certain favorable developments in its Diabetes business. Medtronic is highly positive about its foray into the $1 billion standalone continuous glucose monitoring (CGM) market with its Guardian Connect.

We are currently hopeful about the company’s newly-launched restructuring initiative called Enterprise Excellence plan, aimed at $3-billion annual growth run rate savings by the end of fiscal 2022. Per the company, this new program has been designed to increase its effectiveness and enabled reinvestment for growth along with driving a consistent margin expansion and EPS leverage.

At the end of the second quarter of fiscal 2019, Medtronic stated that the Enterprise Excellence program is being successfully executed as proven from the period’s margin expansion. Per the company, it is confident about delivering the estimated 50-basis points of full-year underlying operating margin growth despite the mixed impact of China tariffs and the expected dilution from the Mazor Robotics acquisition.

Meanwhile, we are optimistic about the integration of the recently-closed buyout of Mazor Robotics, which is projected to fortify Medtronic's position in the robotic spine surgery space. The buyout has combined Medtronic's market-leading spine implants, navigation and intra-operative imaging technology with the acquired company's robotic-assisted surgery (RAS) systems.

On the flip side, the company has been grappling with steep costs and expenses, weighing heavily on its margins. Also, its 2019 guidance remains conservative on the apprehension of a significant currency headwind.

Key Picks

Some better-ranked stocks in the broader medical space are Integer Holdings Corporation (NYSE:ITGR) , Surmodics, Inc. (NASDAQ:SRDX) and Veeva Systems (NYSE:VEEV) .

Integer Holdings has an earnings growth rate of 31.2% for the first quarter of 2019. The stock has a Zacks Rank #2 (Buy).

Surmodics’ long-term earnings growth rate is projected at 10%. The stock carries a Zacks Rank of 2 currently.

Veeva Systems’ long-term earnings growth rate is estimated at 19.5%. The stock flaunts a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

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