STJ ST. Jude Medical, Inc.

Leading medical devices player, Medtronic (MDT) has decided to participate in the annual JP Morgan Healthcare Conference on January 9, 2012. The company will be represented by its chairman and CEO, Omar Ishrak, at the conference.

The Minneapolis based company continues to face significant challenges as its core segments, ICDs and Spinal, accounting for 40% of the business, are on a declining trend. The situation becomes more challenging with the current economic uncertainty and austerity measures adopted in various countries. This is not typical of Medtronic alone and its peers Boston Scientific Corporation (BSX) and St Jude Medical (STJ) are also facing the brunt.

Despite several challenges, the company is undertaking initiatives to revive its top line. This includes penetration of international markets, portfolio expansion and restructuring initiatives, which should benefit the company over the long term. Medtronic has witnessed greater contribution from recently launched products along with strong growth from international markets. We believe the company will discuss these strategies at the upcoming conference.

Over the past few years, Medtronic has been reallocating resources toward new therapies to drive growth. Meaningful acquisitions made over the last few quarters include Ardian, Invatec, Osteotech and ATS Medical. About 60% of its business is growing at 8% (on a combined basis) fueled by new products, which in turn triggered pricing gains and market expansion. These businesses are already contributing to the company’s growth profile and are expected to be a larger force going forward.

Medtronic’s focus on globalization is prompted by the opportunity rife in international destinations, especially in the emerging markets. These markets recorded 20% growth during the most recent quarter, a trend that is expected to continue into 2012. The quarter marked the 11^th straight period of generating more than 20% growth in China. Collectively, India, Brazil and China having grown nearly 20% annually over the past four years, with health care becoming a national priority, now represent 10% of total revenues.

The company also resorted to restructuring to align its cost structure with the current market conditions and prepare the groundwork for long-term growth. To achieve this objective, Medtronic decided to scale back infrastructure in slower growing areas with increasing investment in niches with potential such as emerging markets and new technologies.

We are currently Neutral on Medtronic, in line with the short-term Zacks #3 Rank (Hold).

 
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