Medtronic is a star of the medical-device industry, leading the markets for pacemakers, implantable cardioverter defibrillators (ICDs), neurological devices and spinal products. And there's more where that came from -- its pipeline of new products is deep. But the company's stock looks like it suffered a coronary this year, dropping 14% since mid January.
The problem is Medicare. Cowen Co. analyst Dhulsini de Zoysa says Wall Street is worried that possible cuts in Medicare reimbursement rates, particularly for ICD therapy, could hurt Medtronic's profitability. The stock's recent decline makes it unusually cheap, and he suggests investors take advantage. The stock (MDT), recently $52, trades at just 18 times de Zoysa's calendar 2007 earnings estimate of $2.79 per share -- near its lowest valuation in ten years, he says.
De Zoysa thinks concerns over reimbursements are overblown. While rates could drop, he doesn't think drastic changes are likely. And besides, ICDs account for less than one-third of Medtronic's revenues. That means the company can withstand changes that could hurt less-diversified companies, such as St. Jude Medical (STJ), he says.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Medtronic is planning to launch a number of products to drive sales growth, including cardiac rhythm management products, artificial discs and a treatment for diabetes. Its hopes that its drug-eluding stent, which is already available in Europe, will be approved for use in the U.S. next year. De Zoysa expects Medtronic to continue spending heavily on research and development, about 10% of yearly revenues.
Analysts, on average, expect Medtronic to earn $2.52 per share in the fiscal year that ends April 2007, according to Thomson First Call.
--Lisa Dixon
-
Social Security New Rule: Overpayments Must Be Paid Back 100%. Why It MattersAs of March 27, the SSA will require beneficiaries who have been accidentally overpaid to repay 100% of the money, reversing a previous policy that allowed for only 10% recoupment.
-
Medicare and Medicaid Employees Offered New Buyouts: What You Need to KnowFederal HHS workers who inspect food, research diseases and administer Medicare and Medicaid are offered $25,000 buyouts
-
Stock Market Today: Stocks Gain to Start the Short WeekStocks struggled for direction Tuesday, though Intel made a beeline higher on M&A buzz.
-
Fed Leaves Rates Unchanged: What the Experts Are SayingFederal Reserve As widely expected, the Federal Open Market Committee took a 'wait-and-see' approach toward borrowing costs.
-
Fed Sees Fewer Rate Cuts in 2025: What the Experts Are Saying
Federal Reserve The Federal Reserve cut interest rates as expected, but the future path of borrowing costs became more opaque.
-
Why Is Warren Buffett Selling So Much Stock?Berkshire Hathaway is dumping equities, hoarding cash and making market participants nervous.
-
Fed Cuts Rates Again: What the Experts Are Saying
Federal Reserve The central bank continued to ease, but a new administration in Washington clouds the outlook for future policy moves.
-
If You'd Put $1,000 Into Google Stock 20 Years Ago, Here's What You'd Have TodayGoogle parent Alphabet has been a market-beating machine for ages.
-
Fed Goes Big With First Rate Cut: What the Experts Are Saying
Federal Reserve A slowing labor market prompted the Fed to start with a jumbo-sized reduction to borrowing costs.
-
Stock Market Today: Stocks Retreat Ahead of Nvidia EarningsMarkets lost ground on light volume Wednesday as traders keyed on AI bellwether Nvidia earnings after the close.
