Medtronic: Devices and Prices
Shares of this medical-device maker have been on the decline since January. And one analyst says worries over Medicare reimbursement rates have made the shares unusally cheap.
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
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.
-
Four Surprising Signs You’ll Never Retire (and How to Fix Them)
Gearing up to retire? If any of these four signs ring true, you may want to make some changes before you do.
-
Stocks Rise After Trump-Powell Fed Tour: Stock Market Today
Nvidia hit a new all-time high intraday, but another renowned semiconductor name and some less iconic stocks were bigger movers Friday.
-
Are Buffett and Berkshire About to Bail on Kraft Heinz Stock?
Warren Buffett and Berkshire Hathaway own a lot of Kraft Heinz stock, so what happens when they decide to sell KHC?
-
How the Stock Market Performed in the First 6 Months of Trump's Second Term
Six months after President Donald Trump's inauguration, take a look at how the stock market has performed.
-
If You'd Put $1,000 Into Berkshire Hathaway Stock 20 Years Ago, Here's What You'd Have Today
Berkshire Hathaway is a long-time market beater, but the easy money in BRK.B has already been made.
-
If You'd Put $1,000 Into Procter & Gamble Stock 20 Years Ago, Here's What You'd Have Today
Procter & Gamble stock is a dependable dividend grower, but a disappointing long-term holding.
-
My Three-Day Rule for Investing: And If it Applies Now
Stock Market I've seen a lot in my career. Here's what I see now in the stock market.
-
Is It Time to Invest in Europe?
Stock Market Europe is being shaken out of its lethargy, militarily and otherwise, by Donald Trump's changes in U.S. policy. Should investors start buying?
-
Stock Market Today: Stocks Gain to Start the Short Week
Stocks struggled for direction Tuesday, though Intel made a beeline higher on M&A buzz.
-
Fed Leaves Rates Unchanged: What the Experts Are Saying
Federal Reserve As widely expected, the Federal Open Market Committee took a 'wait-and-see' approach toward borrowing costs.