Medtech finds AI applications

Artificial intelligence is making its mark in medical technology applications where powerful software combines with tools including robots to make surgeries less invasive and less painful.

This is making it easier and faster for doctors to do their work. It also means faster healing times for patients and shorter hospital stays. Patients are happier. Health-care providers are happier as they contain rising costs with reduced surgical times and post-operative care.

Here are updates on a leading medtech company and ETF that focuses on this sector:

Medtronic Inc. (NYSE: MDT) Recent close $80.57. (All figures in US dollars.)

Background: Medtronic is the world’s largest medical device company with a market capitalization of $105 billion. It gets 60% of its sales and profits outside the US and employs 90,000 people, of whom 10% are research scientists. 

Medtronic operates in four segments. Cardiovascular management devices, including pacemakers is the largest at 37% of sales. Robots, implants, and surgical tools are 29%. Wound closure products and imaging devices are another 27%. The remaining 7% comes from the diabetes group, which makes insulin pumps and other consumables. 

Performance: Medtronic shares peaked at $134 in the late summer of 2021 and have been on a downward path ever since. The shares are off 2.2 % year-to-date.  

Recent developments: In its latest financial statement, the company reported revenue of $8.1 billion and adjusted earnings of $1.30 per share compared to the consensus estimates of $7.9 billion and $1.26, respectively.

New initiatives: Medtronic markets the Hugo robot-assisted surgical tool, which is similar to the da Vinci device. It was designed with the help of surgeons and allows them to precisely control the robotic arms and instruments. This requires them to sit at a console with a high-definition 3D view. 

The company is in the early stages of a partnership with Nvidia Inc. to improve its robotic endoscopy system, which allows for examination of the gastro-intestinal tract via remote camera. The aim is to be able to detect precancerous tissue earlier. 

Dividend: Medtronic raised its dividend last April, its 44^th consecutive year of increase. The $0.69 quarterly payment yields 3.1% at current prices.

Outlook: Medtronic’s shares have lagged because of slowing growth in some of its core cardiovascular business. The popularity of weight loss drugs and worries they will reduce the need for surgeries is also a factor.

And then there have been self-inflicted wounds. Among the missteps: Last year it recalled 350,000 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 the settings.

Medtronic’s outlook has improved but investors remain wary. In February, after beating third-quarter expectations, it raised its annual profit forecast for the third time. It said revenue growth gained momentum with strong performance from its diabetes, core spine, cardiac surgery, structural heart, and cardiac pacing products. Even so the shares continued to drift lower.

iShares U.S. Medical Devices ETF (NYSE: IHI)  Closed Friday at $56.10. (All currency figures in US. dollars.)

Background: This ETF was launched in 2006 and holds US manufacturers who make and distribute medical devices. The companies are the biggest names with the broadest global reach. It has US $8.7 billion in assets.

Performance: The fund has a good track record. Its average annual total return since inception is 11.99%. Its total return year-to-date is 8.6%.  

Key metrics: The ETF has a management fee of 0.4% and a modest trailing 12-month dividend yield of 0.51%. It has a very high p/e ratio of 43.8, which means high expectations are built into the price. Any distributions would be subject to US withholding tax unless the shares are held in a retirement account (RRSP, RRIF).

Portfolio: The portfolio includes 52 stocks with the top five holdings accounting for almost 50% of the fund. These are Abbott Labs (17%), Intuitive Surgical (12%), Stryker (10%), Medtronic (5%), and Edward Life Sciences (5%).

This article appeared in the Internet Wealth Builder on Apr. 22, 2024.  For information on how to reprint this article please view this page.