On Aug 23, we issued an updated research report on Medtronic plc 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 three months, shares of Medtronic have outperformed the industry. The stock has grown 9.9% compared with the industry’s 5.2% rise.

Notably, Medtronic posted better-than-expected numbers in first-quarter fiscal 2019. All major business groups contributed to its solid top-line growth at CER, which highlighted sustainability across groups and regions in addition to displaying a feat of synergy targets. We are also impressed by the company’s solid growth trend in the United States making several strategic divestitures as well as the healthy global acceptance of its advanced therapies.

Also, the gradually stabilizing Cardiac Rhythm & Heart Failure market holds promise. Moreover, it is heartening to note that in the reported quarter, Medtronic reported 2.6% rise within this segment, primarily banking on low-single-digit growth in Arrhythmia Management at CER. Besides contributions from the rollout of Micra Transcatheter Pacing System and Azure pacemaker, the strong quarterly increase was also on the back of growth in atrial fibrillation Solutions at CER, Infection Control and Mechanical Circulatory Support business.

Medtronic PLC Price

Medtronic PLC Price | Medtronic PLC Quote

Additionally, strong demand for the company's suite of quadripolar cardiac resynchronization therapy-pacemakers along with growth in Mechanical Circulatory Support drove Heart Failure division revenues.

The FDA approval for Deep Brain Stimulation therapy as an adjunctive treatment to reduce partial-onset seizures raises hope for the company in the target medical market. Medtronic is also focusing on the geographical diversification of its businesses. The company is highly positive about its foray into the $1-billion standalone CGM (continuous glucose monitoring) market with its Guardian Connect.

We are currently upbeat about the company’s recently-launched restructuring initiative called Enterprise Excellence plan, aimed at $3-billion annual growth run rate savings by the end of fiscal 2022. Per Medtronic, this new program has been designed to increase its effectiveness as well as heighten growth-related reinvestment ability alongside providing a consistent boost to its margin expansion and driving the EPS leverage.

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

A few better-ranked stocks in the MedTech space are Inogen Inc INGN, Integer Holdings Corporation ITGR and Patterson Companies, Inc. PDCO. While Inogen and Patterson Companies carry a Zacks Rank #2 (Buy), Integer sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Inogen has an expected long-term earnings growth rate of 22.5% while the same for Integer Holdings and Patterson Companies is pegged at 15% and 8.3%, respectively.

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