Medtronic Sets Pace for Future Growth

Medical device company Medtronic, Inc. is planning for the future now that the patent infringement matter with Edwards Life Sciences has been resolved. The recently announced acquisition of Ireland-based Covidien plc is the next step in Medtronic’s long term strategy.

Jul 15, 2014 at 9:00AM

Medtronic Inc. (NYSE:MDT) is a leading medical device company that offers a spectrum of high-tech treatments for cardiovascular diseases, diabetes and neurological disorders. The cardiovascular group is the company's largest unit. Medtronic recently resolved long standing patent infringement issues with rival device maker, Edwards Lifesciences Corp. (NYSE:EW).

Further, Medtronic is planning to acquire Ireland-based Covidien plc (NYSE:COV). If the deal clears regulatory hurdles, Medtronic will be poised to advance its strategy of therapy innovation, globalization and creating economic value for its patients. In sum, all of these developments are good news for long-term investors in the medical technology sector.

Medtronic settles heart valve patent dispute with Edwards
As has been reported, Medtronic and Edwards Lifesciences announced a resolution in May 2014 to patent disputes over transcatheter heart valves after a long and bitter legal imbroglio.

The agreement came shortly after the courts ruled in favor of Edwards – a ruling that could have impeded Medtronic's ability to offer U.S. patients its CoreValve replacements. In short, Medtronic will make an initial one-time payment to Edwards of $750 million, and then successive annual royalty payments of at least $40 million until April 2022.

John Liddicoat, president of the company's Structural Heart business said in a statement, "With this resolution, we are pleased that Medtronic will be able to continue to provide the CoreValve System, as well as other products, to patients who need them in the US and abroad."

The resolution was also timely for Edwards Lifesciences as it announced last month that the US Food and Drug Administration has approved Edwards' SAPIEN XT transcatheter aortic valve. The valve is designed for patients suffering from severe symptomatic aortic stenosis.

The big breakthrough here is the elimination of open heart surgeries for aortic valve replacements. That being said patients in Europe have been the beneficiaries of transcatheter valve replacements since 2010. Investors should also note Medtronic won FDA early approval for its CoreValve system in January 2014. So the settlement with Edwards Lifesciences clears the way for Medtronic to offer its patients this transcatheter replacement option.

Why Medtronic's acquisition of Covidien matters
Medtronic and Covidien plc announced in June an agreement which contemplates Medtronic's acquisition of Covidien in a cash-and-stock transaction valued at $93.22 per Covidien share, or a total of about $42.9 billion.

Ultimately the new entity will support three main strategies: therapy innovation, globalization, and economic value for patients. The synergies created by combining Covidien's research and development and manufacturing with Medtronic's clinical expertise will enable the new company "to provide a broader array of complementary therapies and solutions that can be packaged to drive more value and efficiency in health care systems."

There is another rationale for this alliance since this deal is also commonly known as an inversion which will result in a lower U.S. tax burden for Medtronic. It goes without saying that these transactions are controversial.

What isn't controversial is Medtronic's slow, steady growth. Net sales in the 2014 fiscal year were $17 billion, an increase of 3% percent from the prior fiscal year. This was driven primarily by 2% growth in Medtronic's Cardiac and Vascular Group, 2% growth in the Restorative Therapies Group, and an impressive 9% growth in the Diabetes Group compared to the 2013 fiscal year.

The bottom line
Medtronic has long been one of the largest medical technology companies with its array of therapies for treating cardiovascular diseases, diabetes, and neurological disorders. Covidien has also been a leading global health care technology and medical supplies provider. Despite critics' worries over the tax inversion angle, this marriage goes far deeper than that.

The new Medtronic's entity will have global reach and its newly approved CoreValve along with its line of pacemakers, defibrillators, and infusion therapies will reach patients across the global health care village.

In other words, the impressive sales figures for its array of devices noted in the annual report will be supported by this transaction. Moreover, the company is presently trading at a P/E ratio of 21 and a forward P/E of about 15. So it stands to reason that Medtronic is worth a look by investors in the medical device segment with a long-term view.  

Top dividend stocks for those with a long-term view
The smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. That’s beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor’s portfolio. To see our free report on these stocks, just click here now.

Kyle Colona has no position in any stocks mentioned. The Motley Fool recommends Covidien. The Motley Fool owns shares of Medtronic. 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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information