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Keeping Pace At Medtronic

Posted: Nov 27, 2009 11:16 AM by Billy Fisher

Tickers in this Article: BSX, STJ, MDT

Investors checking the pulse of the medical device maker Medtronic (NYSE:MDT) will discover that the company is as vibrant as ever. The company's fiscal Q2 results, which were reported on Tuesday, were both promising and maybe a little bit unexpected.

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Monitoring Vitals
Medtronic checked in with a 15% increase in non-GAAP diluted EPS on an 8% improvement in revenue when compared to the company's year-ago quarter. Medtronic's cardiac rhythm business segment, which sells implantable cardioverter-defibrillators (ICDs) and pacemakers, saw a 3% year-over-year rise in revenue and accounted for approximately one-third of the firm's total revenue for the quarter.

Results out of Medtronic's smaller cardiovascular segment were particularly intriguing. Revenue was up 18% when compared to the prior year quarter as the company's drug-eluting stent "Endeavor" continued to gain traction in Japan. These results come following a robust fiscal Q1 for this division in which revenue jumped 15% on a comparable basis to the prior year as the Endeavor enjoyed its initial launch in the Far East.

The Q3 results at Medtronic's competitors have been mixed. St. Jude Medical (NYSE:STJ) recently said that while its adjusted EPS was up 15%, revenue in the U.S. was lower than expected as hospitals have been tighter in terms of shelling out money for their cardiac rhythm management devices. Boston Scientific (NYSE:BSX) on the other hand, said that its cardiac rhythm management business was experiencing slower-than-expected growth, but that it had not experienced the same slowdown in stocking by its hospital customers.

A Turning Point
The strong performance by Medtronic topped analysts' estimates had the company's stock price trading up 7.3% in late afternoon trading action on Tuesday at a new 52-week high. March appears to have served as the bottom for Medtronic shareholders who had experienced a sharp decline in the value of their investment since last summer.

Since hitting a 52-week low on March 9, shares of Medtronic have been on a tear. The stock is up about 75% since then and the company's Q2 results only add more fuel to the fire. This momentum enabled company management to revise its full year EPS expectations upwards for the company in conjunction with its earnings release. (Learn about the controversies surrounding companies commenting on their forward-looking expectations in Can Earnings Guidance Accurately Predict The Future?)

The Bottom Line
A slowdown in the economy has not left the medical device community unscathed. Each one of these companies is being pressed to find new areas of revenue growth as customer spending has pulled back. Medtronic in particular has managed this adversity better than most would have expected and its shareholders are being rewarded accordingly.

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By Billy Fisher

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