52-Week Highs! What's Going On?

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Last month, Medtronic (NYSE: MDT) got knocked down 3.5% on the day Boston Scientific (NYSE: BSX) lowered guidance. Normally, I'd chastise investors for painting with too broad a brush. But after St. Jude Medical (NYSE: STJ) also warned about missing earnings guidance earlier that month, investors were probably right to be a little worried about how Medtronic would fare.

Apparently, all that worrying was completely unfounded. Medtronic raised earnings guidance today after a fairly strong quarter, and the stock is hitting new 52-week highs. It seems the diversity of Medtronic's offerings and cost-cutting measures are helping the company get through these lean times.

Sales in the company's second fiscal quarter were up 8% on a constant currency basis. Cardiac rhythm devices -- defibrillators, pacemakers, and the like -- were up just 3% year over year, but Medtronic's cardiovascular products were on fire, having grown 18% at constant currencies. Part of the increase was due to the launch of Medtronic's drug-eluting stent Endeavor in Japan. But even in the U.S., where the stent has been available for a while, Endeavor is still selling strong. Medtronic estimates that it gained 300 basis points of market share over the first quarter from drug-eluting stents sold by Johnson & Johnson (NYSE: JNJ), Boston Scientific, and Abbott Labs (NYSE: ABT).

The company's neuromodulation, diabetes, and physio-control businesses are smaller than the cardiac rhythm and cardiovascular divisions, but the double-digit growth from each still contributed significantly to top-line growth.

More importantly, earnings per share increased 15% year over year, excluding one-time items. Medtronic has done well cutting costs, since double-digit revenue growth has been hard to come by. In fact, the increased earnings guidance for the second half of its fiscal year seems to be mostly due to those cost cutting measures; the company didn't raise its revenue guidance from the previously stated 5% to 8% increase.

Those cost cutting measures can't continue forever, but neither can this recession. If Medtronic can hit its guidance of an 11% to 13% increase in earnings, investors should be content to hold on for better times.