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Investment Overview for Medtronic (NYSE:MDT)
Below are key drivers of Medtronic's value that present opportunities for upside or downside to the current Trefis price estimate for the company's stock:
- Medtronic's market share in Pacemakers/Defibrillators: This is a major source of revenue for Medtronic. We expect the company's market share in cardiac rhythm management to decline from 25% in 2015 approximately 19% by the end of our forecast period, mainly on account of increasing pricing pressures. However, Medtronic could retain its market share if there is a growing acceptance of its pacemakers and defibrillators in the market due to new product launches. Further, Medtronic is bracing itself to actively pursue inorganic route in the Chinese market. Emerging markets including China have been experiencing double digits growth. If the company is able increase its market share by 5 percentage points by the end of the Trefis forecast period, this could translate into approximately 10% upside to our current price estimate. However, if the company's new products fail to gain acceptance in the market, it might lose its market share to competitors at a rate higher than anticipated. If Medtronic's market share declines to 8% by the end of our forecast period, we can see a marginal downside to our current price estimate.
- Medtronic's market share in Spinal: We expect the company's spinal market share to decline from 26% in 2015 to 17% by the end of our review period, on account of a federal probe and certain negative reports published in The Spine Journal regarding the use of its INFUSE Bone Graft product. Medtronic could protect its declining market share on account of new product launches in the division. The company's upcoming product launches in this division include Elevate Expandable Cage and Solera Voyager System in thoracolumbar , Divergence Stand-Alone Interbody Cage, the ZEVO Anterior Cervical Plate System, the PRESTIGE LP Cervical Disc and ANATOMIC PTC interbody spacer in cervical. If Medtronic is able to increase its market share by 5 percentage points by the end of our forecast period, there would be a marginal upside in our price estimate for the company.
Headquartered in Dublin, Ireland, Medtronic plc. supplies self manufactured medical devices and therapies to treat more than 30 chronic diseases across 120 countries in the world. Medtronic operates in the following broad segments - Cardiac and Vascular Group (Cardiac Rhythm & Heart Failure, Coronary & Structural Heart, Aortic & Peripheral Vascular), Minimally Invasive Technologies Group (Surgical Solutions, Patient Monitoring and Recovery), Restorative Therapies Group (Spine, Neuromodulation, Neurovascular, Surgical Technologies) and Diabetes Group. The company is a global leader in the Cardiac Rhythm Disease Management, Spinal and Neuromodulation segments. Its main competitors are Johnson & Johnson, Boston Scientific, St. Jude Medical and Stryker Corporation.
On January 26, 2015, Medtronic acquired Covidien for approximately $50 billion. On January 30, 2012, Medtronic sold its Physio-Control business to Bain and Capital for approximately $487 million.
Surgical & Patient monitoring products, Neurological products, Cardiac rhythm management devices, Cardiovascular products and Diabetes products are the major sources of revenue for the company. This is explained by the following factors:
Relentless portfolio diversification
Medtronic continuously launches new and innovative products in the market to retain or increase its market share.In 2016, the FDA approved Medtronic's Micra Transcatheter Pacing System, which might help the company grab a significant portion of the pacemaker market. This pacemaker is the first pacer that does not require the use of wire leads to provide the connection between the device and the heart.
Acquisitions for business expansion
Through a few strategic acquisitions, Medtronic has expanded its business and increased market share. On January 26, 2015, Medtronic acquired Covidien for approximately $50 billion. In the past, it acquired Ardian for $800 million and Osteotech for $123 million in 2011 to boost its Cardiovascular and Spinal sales, respectively.
Restructuring program to prove beneficial
In 2012, Medtronic initiated a global restructuring program which includes reduction of its workforce, greater profitable investment and withdrawal of its operations from slow growing areas. This program should help the company increase sales through enhanced focus on high-growth areas, and also cut costs.
Medtronic is witnessing an increasing share of international sales that have mainly come from China, India, and Brazil. Medtronic's revenue from outside the U.S accounted for 44% of its overall net sales in FY 2015.
Healthcare reform could impact selling prices
Stringent healthcare regulations have implemented checks on the pricing structure of medical device companies, which is expected to negatively affect the profits of the industry.
According to Zacks, healthcare reform which has resulted in an expansion of the publicly insured base has resulted in lower public reimbursements. Additionally, private insurance companies have become more cautious in providing reimbursements which is expected to affect the demand of medical devices and constrain revenues going forward.
How Does Trefis Modelling Work?
How do we get the historical numbers for this chart?
Trefis has a team of in-house Analysts who gather historical data from company filings and other verifiable sources. When historicals are available, we explain how we got them at the bottom of the Trefis analysis section below.
Who came up with the Trefis forecast for future years?
The Trefis team of in-house Analysts considers a variety of factors when projecting any forecast. The rationale for our projections is explained in the Trefis analysis section below.
How does my dragging the trendline on the chart impact the stock price?
- We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.
- We then use forecasted Profits in a Discounted Cash Flow (DCF) model to obtain the Price Estimate for the company.
See more on: DCF Methodology
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