Embracing Medtronic After Hurricane Maria

Medtronic (MDT) is a $106-billion market cap company known as the leading medical device company in the world. The company is well-known for being a leader in medical device innovation through the scientific process of testing, verification, and analysis. Company revenues have been relatively constant for the past few quarters, but the stock price has had some volatility. This generally reflects the way that constant currency and other factors have weighed in on the bottom line. Because the company is growing at a constant rate and the stock has had some volatility, Strong Bio is looking at the fall in price per share following Hurricane Maria as a buying opportunity. Sure enough, as trying to get this article published has taken a full week, the price spiked on a most recent quarterly earnings report that beat the street. However, the stock is not done jumping yet, and here is the Strong Bio support for the buy opportunity thesis as to why.

MDT reported Q1 2018 profit increase of approximately 9.4%, about $0.74 per share, driven by strong demand for heart and vascular devices. Its cardiac and vascular divisions accounted for nearly 36% of its total revenue. Products including defibrillators, pace-makers, heart valves and stents accounted for about $2.65 billion in revenue. Preliminary Q2 review reported total revenue of approximately $7.1 billion, a decrease of about 4% driven by divestiture of its Patient Care, Deep Vein Thrombosis, and Nutritional Insufficiency businesses to Cardinal Health (NYSE:CAH). Earnings growth of $1.04 per share would have increased 4% on a comparable, constant currency basis in absence of Hurricane Maria (was reported at 3% on a comparable, constant currency basis, adjusting for the divestiture and impact of foreign currency; impact of Hurricane Maria estimated at ~$60 million, with four of the company's manufacturing plants being damaged in Puerto Rico). If this rate of growth is sustained, a growth rate of 13.7% (16% minus dividend rate of 2.3%) is potentially hidden in the earnings data. The company is clearly aware of the situation, having made mention of employee dedication, sacrifice, and persistence in order to bring production back up to speed after the hurricane (taken in combination with share repurchase plan). Fiscal Q1 2018 was reported with $7.4 billion revenue and a 4% growth rate at constant currency. Adjusted earnings per share increased 11%, and there is still room for growth moving forward.