How Surgical And Patient Monitoring Products Are Driving Medtronic’s Growth

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The Surgical and Patient Monitoring business has been a cornerstone of Medtronic‘s (NYSE:MDT) growth. The company has grown both organically and inorganically in this market. We estimate that this business constitutes nearly 40% of Medtronic’s value, with nearly $11.5 billion in annual revenue and close to $8 billion in annual gross profit. It is comprised of 3 key segments – Surgical Solutions, Patient Monitoring and Recovery Products, and Surgical Technologies. Medtronic has benefited from the adoption of minimally invasive surgery, expansion in emerging markets such as China, India and Brazil, and acquisitions that have improved the company’s competitive position. Below we take a brief look at how the Surgical and Patient Monitoring business is driving Medtronic’s growth.

Our price estimate of $103 for Medtronic is nearly 20% above the market.

Surgical Solutions – Nearly $5.5 Billion In Annual Revenue

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The Surgical Solutions segment includes products in the fields of minimally invasive gastrointestinal diagnostics, ablation, and interventional lung solutions. Surgical Solutions saw strong growth in the recently concluded quarter, driven by the adoption of new products such as endo stapling specialty reloads, the Valleylab FT10 energy platform, and LigaSure vessel sealing instruments. With improved safety, decreased scarring and decreased length of hospital stays, minimally invasive surgery procedures have grown over the years. This trend is likely to continue, and with the Covidien acquisition, Medtronic has gained a strong foothold in the market.

Patient Monitoring And Recovery – Nearly $4.4 Billion In Revenue

Medtronic’s Patient Monitoring and Recovery business develops, manufactures and markets products and therapies to enable complication-free recovery and enhance patient outcomes. The segment grew 4% in the last quarter, driven by re-commercialization of the Puritan Bennet 980 ventilator, and growth in capnography disposables and Nellcor pulse oximetry products. We expect this growth to continue. As many as 10% of adults aged 40 and older globally are believed to suffer from moderate or severe COPD (Chronic Obstructive Pulmonary Disease). This is expected to increase the demand for respiratory ventilators. Additionally, the growth in the number of critical emergency admissions will fuel the demand for respiratory ventilators in rapid response vehicles.

Surgical Technologies – Nearly $1.6 Billion In Annual Revenue

This segment includes devices and therapies for treating ear, nose, & throat (ENT) and neurological problems along with image-guided surgery and intra-operative imaging systems that enhance surgical planning during certain surgeries. In the last few years, several acquisitions, such as those of Salient Surgical Technologies and PEAK Surgical in 2011, have helped increase Medtronic’s competitiveness in the market. The sales of StealthStation S7, which offers personalized navigation support to surgical staff, and O-Arm Imaging Systems, which offers multi-dimensional surgical imaging, have been growing. Medtronic’s nerve monitoring system has also seen encouraging adoption among surgeons as it helps them keep a check on major motor nerves during ENT surgeries, and has been useful in other procedures performed by endocrine, general, and peripheral surgeons.

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