A Look At Medtronic’s Revenue Sources And Outlook

Medtronic (NYSE:MDT) generates its revenues from sales of Surgical & Patient Monitoring products, Neurological products, Cardiac Rhythm Management products, Cardiovascular products, and Diabetes products. Surgical & Patient Monitoring is the largest segment for Medtronic, and accounts for one-third of its total revenues and profits. The business saw a significant boost from the Covidien acquisition in 2015. However, the segment revenues have declined in the recent past due to a divestiture. Looking forward, we expect the Diabetes segment to post strong growth, while other segments will likely see slower growth in the near term. We have created an interactive dashboard ~ What Are Medtronic’s Key Sources of Revenue. You can adjust the revenue and margin drivers to see the impact on the company’s overall revenues, earnings, and price estimate.

Don’t Expect Any Significant Growth In Surgical & Patient Monitoring Products And Cardiac Rhythm Management Segment

Medtronic’s Surgical & Patient Monitoring segment includes Surgical Technologies, Surgical Solutions, and Patient Monitoring and Recovery. The overall segment revenues have grown from less than $4 billion in fiscal 2015 to over $11 billion in fiscal 2017. This can primarily be attributed to the impact of the Covidien acquisition. However, the segment revenues declined to $10.3 billion in fiscal 2018, due to divestiture of its Patient Care, Deep Vein Thrombosis, and Nutritional Insufficiency businesses in July, 2017. Looking forward, we forecast the segment revenues to decline in low double digits in fiscal 2019, due to the divestiture’s impact. However, we forecast low single digit growth in the later years. This can be attributed to continued growth in LigaSure vessel sealing instruments, and staplers, along with gastrointestinal and hepatology.

Looking at Cardiac Rhythm Management segment, which includes revenue from devices such as implantable cardioverter defibrillator (ICD) systems, and implantable cardiac resynchronization therapy defibrillators (CRT-D), pacemaker systems, has increased from $5 billion in fiscal 2014 to a little under $6 billion in fiscal 2018. We forecast the revenues to increase in low single digits in the coming years to around $6.7 billion by the end of our forecast period. We don’t expect high growth in this segment primarily due to the regulatory hurdles. There are stricter eligibility requirements for the use of Cardiac Rhythm Management devices. These limitations are likely to negatively impact the overall market growth.

Cardiovascular Products accounts for around 20% of the company’s total revenues and profits. The segment includes revenue from sales of stents and catheters to remove clogging from arteries and helps in restoring blood flow throughout the body. The segment revenues have grown from less than $4 billion in fiscal 2014 to $5.4 billion in fiscal 2018, primarily led by its Coronary and Structural Heart (CSH) business. We forecast the revenues to grow in mid-single digits in the near term, driven by higher demand for Evolut PRO valve, and Resolute Onyx drug-eluting stents.

The Neurological Products segment also accounts for roughly 20% of the company’s total revenues, and the segment is seeing growth of late, led by its brain and specialty therapies. The segment revenues on an average have grown in mid-single digits over the past few years, and we expect them to continue to grow at similar pace. This can be attributed to the ramp up in its product line, which includes StealthStation S8 surgical navigation systems, O-arm surgical imaging systems, Mazor X robotic guidance systems, and the Visualase MRI-guided laser ablation systems. The company is seeing growth in Ear, Nose & Throat (ENT) therapies, along with neurovascular and neurosurgery, and this should aid the product demand.

Looking at the company’s Diabetes segment, which primarily consists of insulin pumps, and continuous glucose monitoring systems, has seen revenue growth of 7% (average annual rate) over the last 5 years, and we forecast the growth rate to accelerate in the near term. This can be attributed to the continued demand for its MiniMed 640G systems, and its newly launched MiniMed 670G hybrid closed loop system. However, Diabetes as a segment contributes only 7% to Medtronic’s overall revenues and profits. We thus forecast the company’s total revenues to remain flat in fiscal 2019, as the expected growth in most of the segments will be offset by an expected decline in the Surgical & Patient Monitoring segment, due to the impact of last year’s divestiture.

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