Medtronic Is a Healthy Investment Despite Recent Struggles

NEW YORK (TheStreet) -- Last week Medtronic (MDT) announced third-quarter net earnings of $762 million, or 75 cents per diluted share, a decrease of 23% compared to the same period in the prior year.

That hasn't stopped investors from buying shares, which are up nearly 29% over the past year and up a fraction of a percent for the year to date, as of the Monday close of $57.60.

What do investors see?

My conclusion is they see a financially sound and viable company that is gradually transitioning beyond medical devices, taking definitive steps to expand within the current health care environment and connecting directly with patients as it morphs into a health-services company.

Part of the Minneapolis company's
setback in its previous quarter involved its Symplicity system, a renal denervation technology that is specifically designed to deliver low-level radio frequency energy through the wall of the renal artery to achieve renal denervation. This promising and innovative therapy for treatment-resistant hypertension patients failed the preliminary efficacy test during its first U.S. clinical trial.

The company hoped Symplicity would be a new source of revenue and earnings growth. With a number of its flagship products like defibrillators and pacemakers not selling at past levels, the company had used a growth-by-acquisition strategy to try and fill the void. This included the 2010 purchase of Ardian and its technology to help treatment-resistant patients such as those with renal diseases.

Between Medtronic's earnings disappointment and lowering its EPS guidance for fiscal year 2014, one would have expected its share price to take a hit. Here's the one-year chart, which includes its declining diluted quarterly EPS numbers (the orange line below).

MDT Chart
data by YCharts

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