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Therapy Innovation Impacted Medtronic’s Consistent Revenue

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Overview

Medtronic (MDT) generates ~46% of its revenue from its Cardiac and Vascular Group and ~33% of its revenue from its Restorative Therapies Group. The rest of the revenue come from its MITG (Minimally Invasive Therapies Group) and diabetes business segment. For a detailed discussion on the company’s business segments, read An Investor’s Guide to Medtronic: Key Company Overview.

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Therapy innovation’s contribution 

Therapy innovation generated ~67% of the company’s growth in 2015. The company expected its strong product pipeline and new product adoption to impact its revenue by 150–350 basis points in 3Q16. The reported contribution was ~350 basis points. Therapy innovation delivered at the higher end of the expectations.

In 3Q16, Medtronic registered revenue growth of ~$6.9 billion with contributions from new innovative products, geographical expansion, strategic initiatives, and various services and solutions provided across the business segments. The company forecast 4Q16 sales to grow of 5%–5.5% on a constant currency basis. Revenues are expected to be weighed down by a negative foreign exchange impact of ~$180 million–$220 million.

All of the product segments are found to consistently contribute to therapy innovation growth over the years. They’re expected to drive future revenue as well. By the end of the financial year 2017, MITG is expected to generate ~$500 million of cumulative revenue—driven by the launch of more than 20 new products. The neuromodulation and spine division continue to be a challenge due to weak markets and increased competition in certain product segments such as surgical leads.

Peer estimates

Medtronic’s major competitors, Johnson & Johnson (JNJ), Becton Dickinson (BDX), and Stryker (SYK) are expected to register year-over-year revenue growth of ~ 0.4%, 49.2%, and 4%, respectively, in the quarter ending March 31, 2016.

Investors seeking diversified exposure to Medtronic can consider investing in the iShares Global Healthcare ETF (IXJ). It has around 2.8% of its total holdings in Medtronic.

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