Medtronic Earnings: New Products Should Support Mid-Single-Digit Top-Line Growth

Medtronic MDT posted solid fiscal first-quarter results that held few surprises and put the firm on track to meet our full-year expectations. We’re leaving our $112 fair value estimate unchanged, and although management raised its outlook, our fiscal 2024 projections remain bounded by the new range Medtronic provided. The firm also benefited from easing foreign exchange headwinds and solid pricing gains that largely offset inflationary pressure. We remain confident in Medtronic’s wide economic moat, which is supported by intangible assets underpinning its various technology platforms.

Looking forward, we’re eager to see how well the new leadless Micra AV2 and Micra VR2 pacemakers are received. As leadless cardiac rhythm management technology improves, we expect more practitioners to opt for these types of devices over the traditional ones that require leads. Medtronic’s latest leadless pacemakers feature significantly longer battery life (around 16-17 years) that is very competitive. With the Aurora EV-ICD, the first leadless implantable defibrillator, on deck for rollout later this year, we think Medtronic’s CRM portfolio is well positioned.

The official launch of the new 780g insulin pump also caught our attention. Quarterly U.S. durable pump sales rose in the low 30s on a percentage basis, and importantly, the pool of physicians prescribing the new pump has also significantly increased. Unfortunately, just as the 780g launch has begun, the firm is still dealing with the lingering effects of other patients moving away from earlier generations of Medtronic pumps. As we’ve discussed before, end-user switching behavior is a feature of the pump market, and the impact can be amplified because switching away from a Medtronic pump also means a halt to the pull-through on continuous glucose monitor and infusion consumables. Nonetheless, we see this dynamic as a near-term kink that should straighten out once the installed base of 780g users grows larger.