Abiomed Vs Medtronic Stock: Which Is Best?

Abiomed Vs Medtronic Stock: The medical equipment industry is massive, encompassing anything used in the diagnosis, monitoring, or treatment of medical conditions.

Tongue depressors and bedpans may be the simplest examples of medical equipment, but that’s just the beginning. CT scanners, MRIs, and ultrasound machines qualify under this heading, as do life-sustaining devices like ventilators and implantable equipment such as pacemakers and cochlear implants. 

The companies that develop ever-more-advanced equipment are creating new solutions for sustaining life and improving the quality of life for patients. There are devices capable of replacing heart function, managing insulin levels, and returning mobility to patients who have suffered catastrophic spinal cord and nerve damage. 

Two major players in this industry, Abiomed and Medtronic, are moving the field forward through heavy investment in research and the outright acquisition of other companies’ intellectual property. Certainly, it has been a difficult year for both, as the scientific community’s focus has shifted almost entirely to COVID, but both expect to be back in the spotlight soon. 

Investors in search of healthcare-related stocks that fall outside of the pharmaceutical industry are looking hard at medical equipment companies. Abiomed and Medtronic are top contenders, but the question is, in a matchup of Abiomed vs Medtronic stock, which is best? 

Is Abiomed Stock A Buy?

Abiomed is primarily involved in solving the problem of heart disease. Specifically, for nearly forty years, it has worked to create a device that can replace the heart altogether in cases where a patient experiences irreversible heart failure.

Along the way, Abiomed has designed an increasingly more sophisticated collection of cardiac support equipment, including its Impella line – the smallest heart pumps available in the market today. 

In 2020, Abiomed expanded its product offerings with the purchase of Breethe. This company created an advanced version of the extracorporeal membrane oxygenation (ECMO) system, which temporarily replaces heart and lung function when those organs need time to rest and heal. 

Through early 2019, Abiomed was on a strong growth trajectory. Revenues were on their way up, and profits followed that trend.

However, the past year hasn’t been quite as positive. The COVID-19 pandemic has many people putting off regular care. They are avoiding their physician’s office for all but the worst symptoms, which means many are missing early diagnosis of heart conditions.

Even patients who are well-aware of their need for cardiac care are putting off critical testing and procedures, which has muted demand for Abiomed devices. That, in turn, has driven revenue and profits down. 

For the quarter that ended September 30, 2020, revenue came in at $210 million, which was an increase of 27 percent over the previous quarter. However, that is just 2 percent higher than the same period in 2019.

On the plus side, Abiomed saw a year-over-year revenue increase of 14 percent outside of the United States, led by countries with a better handle on containing the pandemic.  

Abiomed’s operating margin was 29 percent, which is impressive when the high levels of research and development investment are considered. Management reported that the company is debt-free, and it has $736 million cash on hand. 

Given its history and its current financial position, most analysts agree that Abiomed will recover from the COVID-19 dip and eventually return to double-digit growth. However, some do say that new investors may wish to wait on their purchase of shares until there is solid evidence that a return to growth is likely.

Should You Invest In Medtronic?

Medtronic is a diverse medical equipment company with divisions that touch multiple areas of medicine. These include cardiac rhythm disease management (CRDM), through which Medtronic developed the first wearable pacemaker in 1957, as well as its spinal and biologics division.

By some measures, Medtronic is the largest provider of spine and musculoskeletal therapies in the world, and it designs equipment and implants that support reconstruction of deteriorated and diseased spinal structures. 

In addition to these, Medtronic has cardiovascular and neuromodulation divisions, along with a variety of advanced surgical technologies intended to reduce the invasiveness of traditional surgeries.

Finally, Medtronic is a leader in diabetes care, thanks to a life-changing device that automatically delivers insulin to diabetic patients as needed. As of late 2019, Medtronic owned 62 percent of the global insulin pump market.  

In short, Medtronic’s product lines include devices for diagnosis and treatment of more than 70 unique medical conditions, and the company operates in 150 countries around the world.

Its largest market is the United States, however the company names Ireland as its home base for tax purposes. 

Medtronic also felt the impact of COVID-19, as demand dropped for preventative and non-urgent medical treatments. However, Medtronic recovered somewhat more quickly and decisively than Abiomed did, thanks to its larger, more diverse product line. 

The most recent reporting period ended October 31, 2020, and Medtronic announced total revenues at $7.65 billion. This technically represents a decrease of 0.8 percent, though with the inclusion of foreign currency exchange rates, it is actually a 1.5 percent increase.

Second quarter GAAP earnings-per-share came in at $0.36, while non-GAAP were reported at $1.02. In both cases, this is a decrease of 22 percent. 

While those figures aren’t promising, analysts point out that Medtronic has a solid, profitable business with margins of roughly 10 percent for each of the past 10 years. More importantly, investors appreciate Medtronic’s consistent dividend, currently $0.58 per quarter, or a yield of 2.3 percent per year.

Medtronic has increased its dividend every year for 43 consecutive years, which puts it in Dividend Aristocrat territory.

That fact, as much as anything else, demonstrates the company’s ability to flex and adapt to changing market conditions. 

Medtronic is a solid buy for income investors, and there could be a benefit to recent pandemic-related financial pressures. It may be that today’s share prices are slightly discounted, increasing the likelihood of returns sooner rather than later. 

Risks Of Buying Abiomed Stock

Abiomed’s growth trend died down in 2020, largely due to the impact of COVID-19 on other areas of the healthcare industry. However, that is unlikely to be a long-term challenge for Abiomed.

The biggest risk the company faces is competition – and the effect that competitive challenges might have on bottom-line results. 

Abiomed has had to put more money into research and development to stay ahead of medical equipment companies interested in moving into the cardiac care space. As a result, margins have been shrinking.

Meanwhile, given the highly specialized area of medicine in which Abiomed operates, it has struggled to secure enough eligible patients to perform the sorts of clinical trials necessary for new technology. 

Decreased profitability, increasing competition, and obstacles in the research and testing of advanced devices are real risks to the company, though the consensus is that with the right strategic moves, Abiomed will successfully overcome them.

Dangers of Investing in Medtronic

For the moment, the dangers of investing in Medtronic can be summarized in a single word: COVID-19. The company depends on patients receiving treatment for chronic and acute medical conditions, and there has been a distinct downturn in consumption of healthcare services. 

The situation will certainly be resolved or on-track for resolution within 12 months, but the longer-term impact to the economy – particularly as it pertains to healthcare – is not yet clear.

This complex and uncertain future has prompted business leaders to hold off on giving any financial guidance for the foreseeable future.  

Medtronic vs. Abiomed Stock: The Bottom Line

While both Abiomed and Medtronic show promise for medium and long-term gains, in a Medtronic vs Abiomed matchup, Medtronic is the winner.

It is less expensive from a price-to-earnings perspective, and it has the benefit of being far more diverse in its product lines. Finally, the reliability of Medtronic’s dividend can’t be beat, and that’s an important feature given the current volatility of the larger market. 

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.