Medtronic plc MDT, a major player in the medical device space, recently announced the receipt of CE mark for its HVAD System left ventricular assist device (LVAD). The HVAD System is the only centrifugal LVAD approved for a less-invasive implant procedure in patients with advanced heart failure.
Over the last six months, Medtronic has surpassed the broader industry trend with respect to price performance. The trend, however, was disturbed in the middle of November when the company released mixed second-quarter fiscal 2017 results. While earnings exceeded the Zacks Consensus Estimate, revenues missed the mark. The lowered guidance for fiscal 2017 was also disappointing.
Since the quarterly report, the company witnessed a dip in its share price, significantly lower than the broader Medical Products Market. Accordingly, as per the last share movement, the stock is down 8.8%, much wider than the -5.8% for the broader industry of Medical Products over the last six months. Adding to this is the Medtronic’s estimate revision trend for the full year which is clearly bearish. There have been 13 downward revisions with no upward revision for last one month. Similarly, for the same period, current year estimates have slipped by 8 cents from $4.65 to $4.57.
However, we expect Medtronic to get a boost from several recent regulatory approvals and publication of favorable data. One of the encouraging developments is of course the CE Mark for HVAD System. The system`s small size makes it well-suited for routine thoracotomy implantation. This implant procedure potentially enables faster patient recovery compared to the traditional approach, which may lead to shorter hospital stays.
The HVAD System consists of HVAD Pump, which is smaller than other commercially available devices, and allows easy implantation through a small, lateral thoracotomy incision between a patient`s ribs on the left side of the chest. Compared to the standard LVAD surgical implant technique, the new approach uses a smaller incision which reduces surgical bleeding, blood transfusions and alleviate development of heart failure.
As per a new GlobalData report, the market for heart failure treatments is expected to grow from $3.2 billion in 2015 to $11.8 billion in 2025, representing growth at 13.7% CAGR. Accordingly, the latest development opens up scope for Medtronic to exploit the potential of this growing market.
In the recently concluded second-quarter fiscal 2017 results, Medtronic’s Cardiac Rhythm & Heart Failure division under broader Cardiac and Vascular Group performed quite well with 6% year-over-year growth.
There has been significant progress under this segment, particularly the increased global adoption of its Reveal LINQ insertable cardiac monitor. Before the CE mark for HVAD System, the company most recently got FDA approval for its Claria MRI Quad Cardiac Resynchronization Therapy Defibrillator (CRT-D) SureScan device for the treatment of heart failure. We believe that Medtronic will continue to progress with the development of its heart failure portfolio which will allow more patients to receive life-sustaining benefits from its advanced heart failure treatment devices.
Zacks Rank & Key Picks
Medtronic currently carries a Zacks Rank #4 (Sell). Better-ranked medical stocks are NxStage Medical Inc. NXTM, Baxter International Inc. BAX and Bovie Medical Corporation BVX. NxStage Medical and Baxter International sport a Zacks Rank #1 (Strong Buy) while Bovie Medical carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
NxStage Medical surged 29.5% over the last one year compared to the S&P 500’s 4.8% over the same period. The company has a four-quarter average positive earnings surprise of 50.00%.
Baxter International rallied 17.9% over one year, much higher than the S&P 500. It has a trailing four-quarter average positive earnings surprise of 27%.
Bovie Medical recorded a 123.3% gain in the past one year, way better than the S&P 500. The company has a trailing four-quarter positive average earnings surprise of 28.7%.
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