Medtronic Displays Glimmers of Progress in Third Quarter; No Change to Our Fair Value Estimate

Wide-moat Medtronic’s fiscal third-quarter results offered marked sequential improvement over anemic second-quarter performance. With the firm on track to meet our full-year expectations, we’re leaving our fair value estimate unchanged. Organic third-quarter revenue grew 4% year over year, fueled by strength in cardiac rhythm and heart failure, neuromodulation, and structural heart. Though Medtronic has been affected by factors outside its control—like shortages of chips and resins, hospital staffing challenges, and China’s volume-based procurement program—some of these elements have eased and allowed some green shoots to emerge. We surmise the pockets of strength in the more elective product categories reflect some normalization of nonpandemic healthcare utilization. Nonetheless, we remain cautious about whether this quarter’s mid-single-digit growth can be maintained. We think this will depend on further commercialization of new products as well as the planned divestitures of some slower-growing, mature businesses.