Being a skeptic won't win you friends. By and large, when people read my articles and columns, they own the stocks of and/or work at the company (or companies) I'm talking about, and they want me to tell them how smart they are for owning said stock. That's especially true when there are lots of folks crowded around the Kool-Aid bowl, cheering a given stock as a darling. So I've taken considerable flack for not liking Medtronic (NYSE:MDT) much in the past year.
How's that opinion panning out? Medtronic stock is down about 10% for the past year, and down close to 20% from its highs. Not exactly the worst stock in the market, but enough to offer a little vindication in the face of those who've questioned my intelligence, ethics, and sexual proclivities.
All that aside, this quarter wasn't bad -- certainly not as bad as some people apparently feared. Revenue was up a bit less than 11%, and though gross margins improved a bit, operating income was up less than 8%.
The large cardiac-rhythm-management business saw total revenue rise more than 10%, with ICD sales up about 12%. Confirming what we already heard from Boston Scientific's (NYSE:BSX) Guidant business and St. Jude (NYSE:STJ), the ICD market has definitely slowed a bit. All things considered, though, I'm not terribly worried about this business. Nothing grows in straight lines, and Medtronic is still far and away the leader.
I'm less than impressed, yet again, with the diabetes business, where revenue was up just 5% on weak disposables. The cavalry may be coming to the rescue, though. A new continuous glucose-monitoring device could be a major winner for the company -- at least until competitors like Abbott Labs (NYSE:ABT) can catch up.
With some of the steam out of this stock, I'm not nearly as anti-Medtronic as I once was. In fact, the stock actually seems pretty much fairly valued to me, and fair value may not be a terrible price to pay for a company like Medtronic. There's lasting growth potential in the rhythm-management, stent, diabetes, neurology, and spinal markets, and who's to say that the company can't or won't buy its way into other growth opportunities like orthopedics?
Decide for yourself what "fair value" means, and whether you should demand a discount before buying. At this level, I wouldn't be too opposed to Medtronic as a long-term play on health care -- and the great non-cyclical characteristics that go with it.
Further healthy Foolishness:
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
