Tuesday, April 7, 2020

An International AIM Equity Fund holding: Medtronic Plc (MDT, $86.27): “Medtronic Mending the Future” by Mia Albian, AIM student at Marquette University

Medtronic Plc (MDT, $86.27): “Medtronic Mending the Future”
By: Mia Albian, AIM Student at Marquette University

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.


Medtronic Plc (NYSE:MDT) is one of the world’s largest medical technology, services and solutions companies. MDT engages in the development, manufacture, distribution, and sale of device-based medical therapies and services. The company was founded in 1949 and is headquartered in Dublin, Ireland.

• MDT operates through four main segments, including the Cardiac and Vascular Group (38%), Minimally Invasive Technologies Group (28%), Restorative Therapies Group (27%), and Diabetes Group (8%).

• MDT’s main source of revenue stems from the Americas, most of which comes from the United States (53% of FY2019 revenues).

• MDT’s Q3 2020 Earnings Call reported organic revenue growth of 2.6% and adjusted EPS of $1.44, growing 11.6%. EPS has grown at 41% per year over the last three years.

• As Covid-19 continues to have a global impact, MDT’s businesses are being impacted, as well. The impact is expected to worsen in April and will likely have a material impact overall.

• MDT has recognized the acute need for ventilators in this global crisis and has ramped up production of their Puritan Bennett 980 ventilators. Additionally, MDT openly shared the PB 560 ventilator design information in order to increase global production for the fight against Covid-19.

• Since being added to the AIM International Portfolio on October 13, 2017 at $78.24, MDT has grown and is currently trading at $86.27, showing a 10.26% increase from the initial purchase price.

As widely anticipated, the SPRYAL-HTN OFF-MED trial has marked this year’s headline clinical study for the medical device community, as renal denervation achieved its primary endpoint. Renal denervation is an innovative device-based interventional therapy, used to treat patients with high blood pressure resistant to drugs. The HTN-OFF MED trial proves that renal denervation works. The next part of the trial is the HTN-ON MED trial, which must answer the question of how well renal denervation will work. 

The hypertension market is a massive market opportunity, as it affects 1 in 3 adults and is the single largest contributor to death. MDT believes the market could be $1 billion market by 2026, with about half of the market being in the United States, depending on reimbursement, guidelines and other factors. It is important to note that tihis system has been approved in Europe, so the results could restart renal denervation internatonally. However, the enrollment of this trial has been paused due to Covid-19. It is expected to be approved by the FDA in early 2022, given the ongoing Covid-19 pandemic.  

What has the stock done lately?
During the month of March 2020, the stock saw a change of -29.60%, trading at $103.59 on March 4 and $72.92 on March 23. Since this significant drop, MDT’s price has continued to slowly increase.
Past Year Performance: Over the course of MDT’s most recent fiscal year, the stock decreased 23.96% YTD. The iShares MSCI ACWI ex US ETF is down 19.7%. The 52-week range includes a low of $72.13 and a high of $122.15.
Past Year Performance

Source: FactSet

My Takeaway
MDT is well positioned to continue growth in the future. They continue to put a strong emphasis on growing their company through product innovation. I believe the pauses in clinical trials to free up healthcare resources and delays in pipeline timelines due to Covid-19 will materially weigh on the near-term results of the stock. However, since MDT is a global leader in medical technology, I believe the stock will recover and continue to grow as global economic conditions return to normal. Therefore, the recommendation for Medtronic Plc is Hold.

MDT Past Month (March) Performance

Source: FactSet