Medtronic, Inc. is a leading medical device company in the world. It ranks among the world’s largest medical technology, services, and solutions companies. The company has a leadership position in therapeutic and diagnostic medical markets worldwide.
Medtronic operates through the following segments – Cardiac & Vascular (38% of 2018 revenue), Minimally invasive therapies (29%), Restorative therapies (26%) and Diabetes group (7%). The company operates through more than 350 locations across 150 countries worldwide. About 16% of Medtronic’s total revenue comes from emerging markets. The U.S. accounts for more than 50% of total revenues while over 30% is derived from non-U.S. developed economies. The company has a presence in the Americas; Asia Pacific; Europe, Middle East, & Africa (EMEA) and China.
Medtronic serves more than 75 million patients. It caters to a diverse group of customers including hospitals, clinics, third-party health care providers, distributors, and other institutions, etc. According to its website, the company improves the lives of more than two people every second. The company has vast sales and distribution networks and a huge patent portfolio.Investment Data
- Opportunity Score: 68
- Ticker: NYSE:MDT
- Sector: Healthcare
- Industry: Medical Devices
- Market Cap: 157.27B
- P/E: 33.97
- Dividend Yield: 1.84
- Dividend Payout Ratio: 62.61
- Chowder Score: Dividend Snapshot Members Only
- 3, 5, 10-year Revenue Growth: Dividend Snapshot Members Only
- 3, 5, 10-year Dividend Growth: Dividend Snapshot Members Only
Revenue Growth & Market Exposure
Medtronic has come a long way from being a medical equipment repair shop to a leading medical equipment company today. Medtronic’s product innovation and offerings are second to none. The company makes some of the most innovative products like its first transcatheter which disrupted the pacemaker market and its leadless and miniaturized pacemaker which is 90% smaller than the existing device. Transcatheter aortic heart valve, stent retrievers, and surgical end effectors are currently in the process of continuous innovation. Medtronic’s development activities are directed towards reducing patient care costs and the duration of hospital stays in the future. The company is known for providing high quality, integrated, lower-cost care.
Medtronic invests $2 billion on R&D every year to retain its position as a technology leader in the healthcare industry. It has developed an extensive portfolio consisting of more than 46,000 patents. Ownership of a large patent portfolio, huge distribution networks, and innovative products form a deep moat around Medtronic’s business. Medical companies are subject to stringent government regulations which also act as a significant entry barrier.
In addition to expanding its product portfolio, the company focuses on inorganic growth as well, with successful tuck-in acquisitions. Most notable acquisitions in FY19 included Mazor Robotics, EPIX Therapeutics, and Nutrino. Medtronic’s revenues have grown at a rate of ~12% CAGR in the last five years and it is targeting organic revenue growth of 4% in FY20.
Medtronic is a constituent of the S&P 500 Dividend Aristocrats index, having increased its annual dividend payment for the past 42 consecutive years. Its dividends have grown at a rate of 13.9% CAGR over the last decade. Medtronic last raised its dividend by 8%. It has been a consistent free cash flow generator and has a 65% payout ratio. The company’s shares sport an average annual dividend yield of over 2%.
Medtronic returned $4.6 billion to its shareholders in the form of dividends and share repurchases in FY18. It has set a target of improving its free cash flow conversion of adjusted net earnings to 80% over the next 2-3 years. The company intends to return at least 50%of its free cash flow to the shareholders. Its target payout ratio is a reasonable 40%, which it expects to grow every year.
Medtronic should benefit from a series of major product launches that are planned during the second half of FY20. The company should also gain from its growing presence (consistently delivering double-digit constant currency growth) across multiple geographies like China, Middle East & Africa and India, where it successfully grew by 13%, 17% and 19%, respectively. Medtronic is also investing in future growth through investment in R&D and tuck-in acquisitions.
Medtronic increased its EPS guidance by $0.10 to $5.54-$5.60, for FY20. It should, therefore, continue increasing dividends in the low-mid double-digit rate in the future.
Medtronic faces competition in both the therapeutic and diagnostic medical markets globally. It competes with large and small manufacturers as well as other pharmaceutical companies. Johnson & Johnson, AbbVie, Abbott Laboratories, Becton, Dickinson & Co, Cardinal Health, etc. are a few of its leading competitors.
Medtronic has successfully secured a leading position in medical technology with innovations and market leadership across its businesses. Accretive acquisitions, expanding market share position in emerging economies, innovative products, and an impressive product pipeline should continue to support future revenue growth.
MDT makes it at the top of the list for medical devices ahead of ABT and SYK with the best Chowder Score at 14% and it keeps up with the S&P 500.
DISCLOSURE: Please note that I may have a position in one or many of the holdings listed. For a complete list of my holdings, please see my Dividend Portfolio.