Medtronic (MDT) recently reiterated its fiscal 2011 revenue and earnings guidance. The company expects revenues and adjusted earnings per share (EPS) to increase 5%-8% (at constant exchange rates, CER) and 10%-13%, respectively, in 2011. However, including the impact of acquisition-related expenses and an extra week in the first quarter of fiscal 2010, EPS in 2011 is expected in the range of $3.45-$3.55.
 
Medtronic also provided guidance for the first quarter of 2011 after excluding the impact of acquisitions and an extra week. The company has taken into consideration $30-$50 million of unfavorable foreign exchange movement. Revenues and EPS are expected in the range of $3.86-$3.96 billion and 79 cents-81 cents, respectively. If revenues and EPS meet expectations, it will represent a growth of 5-8% at CER and 10%-13%, respectively. However, Medtronic’s EPS guidance is lower than the Zacks Consensus Estimate of 84 cents.
 
Medtronic, with $15.8 billion in revenues in fiscal 2010, is one of the world’s leading medical technology companies, specializing in implantable and interventional therapy devices and products. The company earns revenues from seven divisions – Cardiac Rhythm Disease Management (CRDM), Spinal, CardioVascular, Neuromodulation, Diabetes, Surgical and Physio-Control.
 
CRDM is the largest segment at Medtronic and recorded $5.3 billion in sales in fiscal 2010, up 5% from fiscal 2009. Earlier this month, the company launched the Protecta portfolio of defibrillators with SmartShock technology in Europe. Medtronic anticipates launching these devices in the US in the first half of fiscal 2011.
 
Although Medtronic is a leading player in the CRDM market, this segment’s contribution to total revenues has come down from 40% in fiscal 2007 to 33% in fiscal 2010. Based on a strong and diversified portfolio and the potential future launch of products, we believe Medtronic will be able to maintain its market position.
 
However, we remain concerned about the increase in the company’s operations in international markets, which accounted for 41% of the company’s total revenues in 2010. As a result, the company is heavily dependent on foreign currency movement. Moreover, it faces stiff competition from players like Boston Scientific Corp. (BSX) and St. Jude Medical (STJ).
 
We are Neutral on the stock.
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