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Description:

Medtronic is a leading developer, manufacturer and marketer of medical devices (therapeutic and diagnostic). Founded in 1949, Medtronic is now the world’s largest medical technology company. It operates out of Minneapolis, and has a worldwide presence with over 45,000 employees. 

The company’s key products focus on providing recurring treatments for various ailments, e.g. chronic diseases, through the use of implantable devices. Strategic products include: pacemakers, insulin pumps, tissue valves, etc.

The present CEO, Mr Omar Ishrak, ex-GE Healthcare division boss, has extensive understanding of emerging markets, and therefore it can be expected that under his helm, the company will expand steadily over the next 10 to 15 years into emerging markets (EM). For instance in China, the company has already implemented a new marketing strategy: establishing itself as a center of excellence for practitioners. It provides training in its products and helps doctors create the required business stream.

Historically, Medtronic's EBIT/revenue ratios have been around 31.5. With the cuts from the US Medicare reform taking shape, it’s anticipated that Medtronic will introduce manufacturing efficiencies and other cost savings to defend the historically high financial ratios.

Strengths and weaknesses analysis / Fundamental analysis:
Strengths: 

• Medtronic is a powerhouse for innovation; this includes therapeutic and diagnostic applications. It holds about 50% of the market share in heart devices and spinal products, 
• The latest insulin pump, an improved version of an earlier version, has returned positive clinical trial data and the file is at the FDA for review. The market introduction should follow shortly after validation,
• The company has a leading position in the emerging neuromodulation market,
• The diabetes business market share may grow faster than anticipated, especially in emerging markets,
• Cost cutting measures and share buybacks support the equity price,
• The company is set to generate about USD 3.7 billion in free cash flow for the 2014 fiscal year and has a leverage ratio of 1.9. This gives the company ample room to maneuver in whichever way it wants. 

Weaknesses:

• Innovation is key in the medical device market; however, with ever stricter compliance requirements, it’s likely that product failures, late-liability and litigation events will occur more often than in the past,
• Product recalls and other related issues destroy doctor confidence in the company,
• Smaller competitors, operating with better financial ratios, may enter the company’s key market segment, 
• Medtronic may re-enter an acquisition cycle and over-estimate potential synergies, as it has in the past, 
• A full product development cycle has increased to about 15 years now: as a result of high development costs. Given this, the company may be tempted to be less strict with their product development protocols, which in turn could raise the failure ratio.