Healthcare | Ireland
WSD Target Price
Annualized Return Since Publication
Target Equity Value (Δ)
Source: Bloomberg end of day market data; not adjusted for dividends (December 8, 2017).
Returns assume a short investment position on the date that WSD Capital Management published its thesis, and an exit on the date that the WSD Target Price is realized.
Returns do not reflect any taxes, fees or dividend and interest expenses related to short sales.
The returns are hypothetical and do not reflect the actual results of WSD Capital Management’s investment activities, nor is it necessarily indicative of future results of WSD Capital Management’s investment activities.
Medtronic is among the world’s largest medical technology, services and solutions companies, serving physicians, hospitals and patients in more than 160 countries.
WSD Capital Management announced its short position in Medtronic in August 2017. In 2016, Medtronic stated that it would reduce its gross debt by another $5 billion to $6 billion between mid-2016 and end of April 2018. In March 2017, Moody’s warned that Medtronic would need to borrow additional debt to fund its cash needs. Some of these cash needs stem from a delay in resolving its Puerto Rico IRS tax matter and one-time items that will constrain cash flow.
In July 2017, Medtronic completed the sale of its Patient Care, Deep Vein Thrombosis and Nutritional Insufficiency business to Cardinal Health in a $6.1 billion cash deal. Even though Medtronic plans to use a significant portion of the after tax proceeds to repay debt, we believe the company will still face a number of challenges in deleveraging, including the negative effects of foreign exchange headwinds.
Moreover, organic growth has been decelerating which will require management to demonstrate more durable cost opportunities to forge a path to surmount topline challenges that are set to intensify moving forward as customer pricing pressure and weak hospital utilization trends as well as payors’ increased focus on value-based healthcare accelerates.
Sells-side analysts project that the contributions from the medical device maker’s therapy innovation, globalization, and services/solutions will support a 5 percent or greater constant currency topline growth this year and beyond. We expect Medtronic to face margin pressures as J&J’s Minimally Invasive Procedures, Spectranetics’s Drug-Coated Balloon treatments, Boston Scientific’s MRI-safe and St. Jude’s Deep Brain Stimulation segments gain momentum.