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Medtronic Shares Climb as Recall Shrugged Off

Associated Press
Tuesday, 20 Nov 2007 | 2:24 PM ET

Shares of medical device maker Medtronic rose Tuesday after Wall Street shrugged off a 2 percent dip in the company's second-quarter profit on the recall of Sprint Fidelis heart wires.

The stock rose 8.4 percent in afternoon trading. Shares have traded between $44.87 and $57.99 over the past 52 weeks.

Medtronic recalled the leads, which are wires that connect implantable defibrillators to the heart, in October, after discovering they broke more often than expected and contributed to at least five deaths. The stock reached an annual low Monday before rising.

Analysts said the impact from the recall was not as severe as initially forecast and that the worst of the impact is likely behind the company.

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"A favorable ramp in Quattro supply and strong customer support helped ease the Fidelis recall's impact" and suggest "a minimal effect on longer-term market growth," he wrote in a note to investors. Quattro is Medtronic's implantable defibrillator.

Approval of the company's drug-coated stent Endeavor could come earlier than expected and prove to be a key catalyst boosting the company's stock. Also, cost savings and sales from the buyout of Kyphon, completed earlier this month, will help push the stock higher over the next year, he said.

Deutsche Bank-North America analyst Tao Levy reaffirmed a "Buy" rating with a $57 price target, saying the major concerns have been temporarily alleviated.

"The ICD (implantable defibrillator) market impact following the Fidelis lead recall appears to be more manageable than expected and volume loss not as significant," he said in a note to investors.

Though competitor St. Jude Medical is likely still the near-term beneficiary of the Fidelis recall, he said, Medtronic management indicated the market share loss was limited.

Thomas Weisel Partners analyst Robert Faulkner reaffirmed an "Overweight" rating and lowered his price target to $51 from $62. But, he said, implant rates were almost unaffected by the recall and market share could be relatively unaffected if there is continued improvement.

"The main takeaway from the quarter is that the impact of the Fidelis ICD lead recall has been muted relative to expectations," he said.

Meanwhile, Lehman Brothers analyst Bob Hopkins reaffirmed a "Overweight" rating with a $62 price target, and Citi analyst Matthew J. Dodd reaffirmed a "Buy" rating with a $60 price target.

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