EUR 850.00 For Business Accounts Only

Morningstar | Investment in Innovation Supports Medtronic's Wide Economic Moat

Medtronic's standing as the largest pure-play medical device maker remains a force to be reckoned with in the med-tech landscape. Pairing Medtronic's diversified product portfolio aimed at a wide range of chronic diseases with legacy Covidien's breadth of products for acute care in hospitals has bolstered Medtronic's position as a key partner for its hospital customers. Medtronic has historically focused on innovation, designing and manufacturing devices to address cardiac care, neurological and spinal conditions, and diabetes. All along, the firm has remained focused on its fundamental strategy of innovation. It is often first to market with new products and has invested heavily in internal research and development efforts as well as acquiring emerging technologies. However, in the postreform healthcare world where there are higher hurdles for securing reimbursement for next-generation technology, Medtronic has slightly shifted its strategy to focus on partnering more closely with its hospital clients by offering greater breadth of products and services to help hospitals operate more efficiently. By partnering more closely and integrating itself into more hospital operations, Medtronic is well positioned to take advantage of more business opportunities in the value-based reimbursement environment, in our view. In particular, Medtronic has been pioneering risk-based contracting around some of its cardiac and diabetes products, which we think is attractive to hospital clients and payers alike.We have always appreciated Medtronic's diverse portfolio, where certain waning product lines would be offset by growth in other categories. The addition of devices and consumables used in the surgical suite should further stabilize potential speed bumps in individual product lines. Medtronic continues to focus on penetrating emerging markets, especially China. We estimate Medtronic generated roughly $1.5 billion in Chinese sales in fiscal 2018. Medtronic's broad portfolio of products fits well with the firm's earlier purchase of Kanghui Holdings, which provides the firm with an established network of native distributors that can reach thousands of hospitals in China.