Replies to post #6591 on The Rising Influence of Rising Affluence

[DewDiligence]

Big-ticket medical devices are a challenging test for multinational companies who sell in emerging markets. Trusted brand names do matter, but not as much as they do with drugs, food, and consumer products. The reason is that big-ticket medical devices are bought only once and the decision on which device to buy is generally made by the doctor, not the patient.

I don’t own any of the “pure-play” multinational device companies such as MDT, SYK, and ZMH; however, I do have a large position in the new ABT, which derives about 25% of sales from medical devices.

[DewDiligence]

15% of sales in merged MDT-COV would derive from emerging markets:

#msg-103352775

[DewDiligence]

Barron’s on MDT—a bona fide ‘TGDT’ play:

http://www.barrons.com/articles/medtronic-ceo-omar-ishrak-strengthens-a-health-care-giant-1445055728

[MDT’s] biggest move, by far, was buying Covidien, an Irish health-care products and services company previously spun out of Tyco, earlier this year. The $50 billion deal not only increased Medtronic’s revenue by almost 60%, but made the company more diversified and balanced, given Covidien’s focus on surgical tools and hospital-based technologies.

… Medtronic expects to generate nearly $40 billion in free cash flow in the next five years, helped by increased access to cash held overseas [as a result of the tax inversion with Covidien]. It has committed to returning half of its free cash to shareholders, and targets a dividend payout ratio of 40%... The company currently pays a dividend of $1.52 a share, for a yield of 2.1%.

…[CEO] Ishrak has been especially methodical in pushing Medtronic deeper into overseas markets. Initially, he planned to focus on creating cheaper products for the rising middle class in the developing world, but soon realized that millions of people in these markets could afford products that were the standard of care in the U.S. They simply lacked the necessary infrastructure and systems to obtain them.

China accounts for about 40% of Medtronic’s emerging-market sales. Ishrak says the slowdown there doesn’t alter his long-term growth target for the company’s Chinese business, and that sales growth in China has been strong in recent quarters.

Ishrak expects sales in emerging markets to grow at a mid-teens pace, or higher, in the next few years, reaching $7 billion within five years. He regards the developing world as a lucrative opportunity for Medtronic, possibly for decades.