Medtronic stumbles amid medtech recovery

Medical technology has had a good year as hospitals have resumed more normal schedules. Medtronic Inc. (NYSE: MDT) has been an exception as a series of missteps have shaken investor confidence.

Background: Medtronic is the world’s largest medical device company with a market capitalization of US $118 billion. It gets 60% of its sales and profits outside the US and employs 90,000 people, of whom 10% are research scientists. 

Medtronic is headquartered in Ireland, but operationally based in Minnesota. It has four segments. Cardiovascular management devices, including pacemakers, are the largest at 40% of sales. Wound closure products and imaging devices are another 28%. Robots, implants, and surgical tools are 26%. The remaining 7% is from the diabetes group, which makes insulin pumps and other consumables. 

Performance: Medtronic shares peaked at US $134 two years ago and have been on a downward path ever since. Year-to-date at their current price of $85 they are up 14.5%.

Recent developments: With the pandemic behind us, hospital operating theatres are back in business, meeting demand for surgeries, medical devices, supplies and drugs. 

Medtronic has been a laggard because of slowing growth in some of its core cardiovascular business and a series of missteps. It recently recalled 350,000 of its implantable defibrillators – a mainstay product – because of malfunctions. Several models of its insulin pumps were recalled because of a risk that hackers could take control of the devices and change their settings. And now there’s a whistleblower lawsuit that contends Medtronic sales representatives operated a bribery scheme in a veterans’ hospital to boost sales. These self-inflicted wounds are among the reasons analysts have downgraded the shares.

On the plus side, Medtronic is investing in artificial intelligence. One example is an intelligent analyzer for spinal surgery which uses data from thousands of previous surgeries to predict likely outcomes of a particular one. This helps surgeons better prepare.

The company recently partnered with Nvidia Inc. to improve its endoscopy system, which allows for examination of the gastro-intestinal tract via remote camera. The partnership allows third parties to train and test AI models that may eventually become part of the system.

Dividend: Medtronic raised its dividend by a penny to $0.69 per quarter with the April payment, its 44^th consecutive year of increase. The stock yields 3.1% at current prices.

This article appeared in the Internet Wealth Builder on Aug. 1, 2023.  For information on how to reprint this article please view this page.