Can Medtronic Still Quicken the Pulse?

Medical device maker Medtronic (NYSE: MDT) reached into its past on Wednesday, delivering an encapsulated history lesson on the company's considerable achievements in the cardiac rhythm management (CRM) business. Investors hoping for some solid looks into the future, however, came up a bit short.

Long the leader in CRM devices (pacemakers and implantable cardioverter-defibrillators), Medtronic has faced increased competition from Guidant (NYSE: GDT) and St. Jude (NYSE: STJ). Once considered unbeatable, Medtronic's products are no longer so technologically dominant, and the company's market share has begun to erode. Medtronic is losing in its other business areas, too. Johnson & Johnson's (NYSE: JNJ) and Boston Scientific's (NYSE: BSX) drug-coated stents have left Medtronic's in the dust, while competition is stealing away growth in the spinal business, and the diabetes industry continues to post disappointing numbers.

Medtronic could have used Wednesday's call to reassure investors that the company's nearly $1 billion-per-year investment in R&D will continue to churn out exciting new products. Or the company could have highlighted some strategies for re-energizing the business. Instead, company guidance amounted to more of the same, along with a reiteration of its revenue growth, which remains in the low- to mid-teens. With a P/E of 28, an EV/FCF of almost 23, and increasing pressures on market share, that might not be good enough to keep investors' hearts racing.

Guidant and St. Jude are no longer weak stepbrothers in the CRM market, and Johnson & Johnson's acquisition of Guidant won't hurt Guidant's available resources for R&D or marketing. What's more, Medtronic will struggle to regain momentum in stents, since its drug-coated stent will be the third player in the market and no one outside Medtronic expects the company's clinical data to be superior. Competition is growing in the spinal, neurological, and diabetes businesses, and the company has been ratcheting down expectations for top-line growth.

This could be a critical time for Medtronic -- can it continue its historical growth and maintain its high valuations, or are these the first stages of a transition to a more staid, if still growing, company? While the company continues to put its money where its mouth is -- it has repurchased more than $500 million worth of stock year-to-date -- that's no substitute for good old-fashioned organic growth. Although the company's history is rock-solid, investing is all about the future. If Medtronic can't restart the growth engine, it could face some pulse-pounding days ahead.

Fool contributor Stephen Simpson is a CFA and owns shares in Johnson & Johnson.