Yesterday, fellow Fool Don Crotty provided a great review of Medtronic's
For all its many and varied businesses, Medtronic still derives a lion's share of its revenue from the cardiac rhythm management (CRM) business -- pacemakers and implantable cardioverter defibrillators (ICDs). Luckily, ICD growth is still torrid as doctors become increasingly aware of the benefits of these devices for a wider range of patients. Better still, Medtronic managed to increase its market share in this area to about 50%.
Although St. Jude
Medtronic also posted solid results in the neurology/diabetes business and the spinal segment, with diabetes in particular showing 20% growth. Though the vascular (read: stent) business was weak overall and stent sales are virtually non-existent in the United States, Medtronic continues to do well with its bare-metal Driver stent overseas -- lifting hopes that the eventual release of a Medtronic drug-coated stent could restore some pep to this business.
With all of that said, I'm still a bit concerned about Medtronic. An unquestioned leader in CRM, Medtronic has, in my view, had mixed results in broadening the base of its business. It arrived too late to the stent game and is way behind in drug-coated stents.
The diabetes business has also not grown quite to plan since its acquisition of MiniMed a few years back. Couple this with an unspectacular cardiac surgery business, and that leaves CRM and spine/neurology as sources of strength. Unfortunately, Medtronic does not yet dominate the spine business to any meaningful extent, and the neurology business (especially the neuro-stim business) is still very young.
What I'd really like to see is for Medtronic to go from reactive (buying into stents and spine devices late) to proactive and flex some of that intellectual muscle that I know the company has in spades. While an acquisition here or there could certainly kick-start performance, I really do believe that the answers need to come from within. I know the company has the resources and the capability; now I want to see the execution.
Let's get something straight before you Medtronic lovers fire off impassioned emails to me. Medtronic is a great company trading at too high a valuation. I have little doubt that Medtronic will succeed in achieving 15% annual growth forever, but I'm not going to pay more than 30 times trailing earnings for that. So I leave Medtronic today as a high-quality growth company that simply trades at too high a valuation to appeal to me.
For more medical technology Foolishness:
- Stent Wars 2: The Market-Share Menace
- Steris, Disinfect Thyself
- Will Anybody Love Angiotech?
- Success Is Intuitive