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In a previous article, I told you how medical apparatus manufacturer Medtronic (NYSE: MDT ) came out with flying colors in its just-concluded second quarter and topped analysts' estimates. The company's stock has performed strongly since then and added another 13% to investors' wealth.
Now, it's time to take a closer look at the company's fundamentals and see why it might be a stock worthy of your investment dollars.
Medtronic's earnings dipped in the first quarter because of weak sales of its heart defibrillators and spinal products in U.S. markets. Stiff hospital budgets and concerns over the safety of the company's implantable cardioverter defibrillator (ICD) device hurt its top line. But the company did remarkably well to counter the weakness by pushing up its new businesses like the Revo pacemaker and the Resolute drug-eluting stent, which is used to open up arteries.
When CEO Omar Ishrak took over the reins of the company, he pledged to expand Medtronic into newer geographies and churn more revenue. It seems his strategy is starting to bear fruit as Medtronic's revenue from emerging markets jumped a staggering 21% in the most recent quarter. The company is pushing hard to improve its margins by focusing on cost reduction and has embarked on a five-year plan to cut $1.2 billion in production costs. This should help the company sustain its margins in the face of falling prices for medical equipment.
But what strikes me the most is the way in which Medtronic is going about expanding its business. It is making its presence felt in emerging markets like the Middle East and China, where costs of medical equipment aren't as high as in the U.S. To supplement this development, the company's cost-reduction strategy, as mentioned before, will help it gain more traction in these markets and maintain margins.
A juicy investment
Apart from all the moves listed above, Medtronic trades at a slightly cheaper price-to-earnings multiple (11.8 times) than its peers Stryker (NYSE: SYK ) and St. Jude Medical (NYSE: STJ ) . When we take into account the company's expansionary steps and its strong free cash flow generation (higher than reported net income), Medtronic seems like an intriguing stock for this new year.
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Fool contributor Harsh Chauhan owns none of the stocks mentioned in the article. The Motley Fool owns shares of St. Jude Medical and Medtronic. Motley Fool newsletter services have recommended buying shares of Stryker. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.