Medical device giant Medtronic (NYSE:MDT) has a corporate mission to help alleviate pain, restore health and extend life for millions of patients around the world. The company is increasingly targeting international markets for growth, and a lineup of new products could push sales growth back up into the double digits. Sales and profits have also grown steadily through the recent economic downturn, and its first quarter proved to be no exception.
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First Quarter Recap
Net sales improved 7% to about $4.1 billion. Medtronic divides its results into two primary operating segments, the first of which is the cardiac and vascular group that sells products dealing with heart rhythm disorders. Sales advanced 9% as reported international growth came in very strong at 18%, though 12 percentage points were due to positive currency fluctuations. Management cited strong trends in structural heart (heart valve disorders), endovascular (chest and abdominal aneurysms) and physio-control (emergency response products) sales.

The restorative therapies segment reported a 6% sales increase, as international again led the way with 22% growth, or 10% when stripping out currency fluctuations. Diabetes treatment and surgical products, as well as neuromodulation (pain and movement disorders) reported positive trends, though spinal sales struggled.

Expense growth outpaced sales, rising 11% to $3 billion. As a result, operating income fell almost 2% to $1 billion, though this still represented a very healthy operating margin of nearly 25%. Lower income tax expense tempered the net income decline to 1% as the bottom line came in at $821 million. Share buybacks helped push earnings growth into positive territory at 1%. Diluted earnings per share were 77 cents. (For more on buybacks, see A Breakdown Of Stock Buybacks.)

Medtronic currently projects modest full-year sales growth between 1% and 3% on a constant-currency basis for total sales of more than $16.5 billion. The company's earnings guidance is in a range of $3.43 to $3.50. Excluding some charges it sees as one-time in nature, it expects earnings growth between 6% and 9%.

Sales Stability and Profit Consistency
Over the past three years, Medtronic has grown sales from $13.5 billion to $16 billion for annual growth of just below 6%. Annual profit growth has been stronger at more than 13%, as earnings have increased from $2.2 billion to $3.1 billion.

Overall, these growth levels are stellar given the global economy has gone through a wrenching recession. This speaks to Medtronic's impressive sales stability and profit consistency. Yet for some reason, investors have largely ignored the stock and have sent its shares down by more than 30% over the past three years.

The Bottom Line
Healthcare stocks have been largely out of favor since the federal government passed a sweeping healthcare industry overhaul in early 2010. As a result, rivals including Boston Scientific (NYSE:BSX), St Jude Medical (NYSE:STJ), Johnson & Johnson (NYSE:JNJ) and Stryker (NYSE:SYK) have all seen their share prices decline over this period.

Medtronic stands out from the crowd for its diversified product and geographic mix in the medical device and surgery fields. It is also projected to have a strong new product pipeline that could push annual sales growth back into the double digits. At a forward P/E of only about 10, the stock deserves a close look. The dividend yield is also appealing at 2.9%. (High-dividend stocks make excellent bear market investments, but the payouts aren't a sure thing. For more, see Dividend Yield For The Downturn.)

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