Medical device maker Medtronic (click ticker for report: ) reported decent results for its fiscal year 2013 first quarter Tuesday morning as its two major end markets (ICD and Spine) continue to show signs of stabilization. The firm grew revenue 2% (or 5% excluding currency fluctuations) year-over-year to $4 billion, roughly in-line with consensus expectations. Earnings increased 8% year-over-year to $0.85 per share, matching the Street’s forecast. The firm reiterated its fiscal 2013 earnings per share guidance of $3.62-$3.70 (up 5%-7% from last year), and we continue to think the medical device maker has valuation upside from today’s levels.
Negative currency fluctuations weighed on reported results, with revenue from international operations declining 1% to $1.78 billion (but still advancing 6% constant currencies). Medtronic noted that it experienced 4% sales expansion in Western Europe, noting double-digit growth in France, the UK, and Ireland. The firm’s US business grew 4% during the first quarter, and emerging markets revenue, on a reported basis, grew 9% year-over-year to $438 million (up 14% constant currencies). Though management expressed some disappointment with emerging-market expansion during the period, CEO Omar Ishrak expects growth to return to a 20%+ pace in coming periods. We think such levels of expansion are achievable.
Among the stand out revenue drivers were Surgical Technologies, up 22%, Coronary, up 11%, and Endovascular, up 12%. Coronary revenue growth was driven by sales of drug-eluting stents, which, as we’ve mentioned before, continue to steal market share in the US. Revenue expansion in the company’s Surgical Technologies division comes as no surprise to us, as we’ve been very bullish on overall surgical device unit expansion. We hold Intuitive Surgical (click ticker for report: ) in the portfolio of our .
Looking forward, we’re confident the firm will be able to achieve its earnings growth targets, especially since management mentioned future acquisitions will not be dilutive to shareholders. Plus, the company’s laser-focus on reducing product cost by $1.2 billion during the next 5 years should support earnings while paving the way for future innovation. Shares of the heart-rhythm device maker are trading at the low end of our fair value range, and we still think the company’s dividend has potential for significant growth (even after more than doubling in just 5 years). We hold the company’s shares in our Dividend Growth Newsletter portfolio.