After the firm and several of its closest rivals produced uninspiring earnings reports in November, Medtronic's (MDT) stock fell 11.3%. There are, without a doubt, some broad industry issues weighing on costs across the board.
Medtronic released earnings on November 23, however it followed other medical device businesses downward when they published results at the end of October. Stryker (SYK) missed analyst expectations for both sales and profits, and it lowered its full-year projections.
Boston Scientific (BSX) fell short of analysts' sales expectations, in spite of delivering profits in line with the analysts' forecasts. Medtronic followed by falling short of sales expectations, and it echoed many of the sentiments of its peers.
The medical device sector is full of similar themes. It's a competitive market with strong pricing pressure, yet there are forces pushing costs up. Supply chain problems and labor shortages are prompting procedure cancellations, resulting in higher fees for procedures that do go ahead.
COVID-19 treatment devices are being sold at a reduced rate, which is hurting sales growth in countries with lower coronavirus case counts than previously reported.
A resurgence of coronavirus cases in other countries is leading to limitations on elective and non-emergency treatments, which are damaging to medical device sales. Medtronic and its competitors find themselves in an challenging position, with no clear direction.
Things are uncertain at the moment, and it will likely take a few quarters for things to return to normal.
Medtronic will never be a high-growth stock. Sales have generally remained flat over the last five years, and earnings have not improved steadily. With forward P/E and enterprise-value-to-EBITDA ratios of around 20, the stock isn't particularly cheap or pricey.
Medtronic is a better dividend stock. It's a Dividend Aristocrat that has established its payout for 44 continuous years and is now paying out a 2.15% yield.
For big US capital market companies in today's environment, that's not bad. The 70 percent payout ratio implies that Medtronic's dividend is sustainable, but there isn't much room for expansion.
Overall, it's probably a safe bet that the leading players in the medical device sector will have increasing demand in the long run, but don't be shocked if there is greater volatility in the first half of 2022.