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.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free 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
-
If You'd Put $1,000 Into Home Depot Stock 20 Years Ago, Here's What You'd Have TodayHome Depot stock has been a buy-and-hold banger for truly long-term investors.
-
What the Rich Know About Investing That You Don'tPeople like Warren Buffett become people like Warren Buffett by following basic rules and being disciplined. Here's how to accumulate real wealth.
-
If You'd Put $1,000 Into Bank of America Stock 20 Years Ago, Here's What You'd Have TodayBank of America stock has been a massive buy-and-hold bust.
-
If You'd Put $1,000 Into Oracle Stock 20 Years Ago, Here's What You'd Have TodayORCL Oracle stock has been an outstanding buy-and-hold bet for decades.
-
How to Invest for Rising Data Integrity RiskAmid a broad assault on venerable institutions, President Trump has targeted agencies responsible for data critical to markets. How should investors respond?
-
If You'd Put $1,000 Into Sherwin-Williams Stock 20 Years Ago, Here's What You'd Have TodaySherwin-Williams stock has clobbered the broader market by a wide margin for a long time.
-
If You'd Put $1,000 Into UnitedHealth Group Stock 20 Years Ago, Here's What You'd Have TodayUNH stock was a massive market beater for ages — until it wasn't.
-
What Tariffs Mean for Your Sector ExposureNew, higher and changing tariffs will ripple through the economy and into share prices for many quarters to come.
