Analyst Note| Debbie S. Wang |
Medtronic reported fiscal 2020 fourth-quarter results that underscored the significant impact of the coronavirus pandemic, as roughly half the quarter (from February through April) was hurt by shelter-in-place orders introduced in North America and Europe by mid-March. After making adjustments to our assumptions for tempered results in fiscal 2021, we’re holding steady on our fair value estimate, as timing differences in our discounted cash flow model have only an incremental effect on the cash flows we’ve projected over the next 20 years. Despite the pandemic-driven disruption to normal business, we’ve seen little to suggest that Medtronic’s wide moat--based on intangible assets--is at risk. We expect the relationships with hospital clients that Medtronic has worked to enhance over the past five years--through its arrangements to manage cath labs and electrophysiology outpatient centers, as well as its progress in signing up hospitals for its various risk-based contracts--should benefit the firm as providers seek to resume caring for non-COVID-19 patients and performing the more profitable cardiovascular, neurovascular, and orthopedic procedures that can help stabilize finances at hospitals.