Analysts at Standard & Poor’s changed their outlook for Medtronic Inc. (NYSE:MDT) from stable to negative due to continuing softness in the cardiac rhythm management market and pressures in the company’s spine business resulting from the Infuse controversy.
It is the second outlook change from a major credit ratings agency the company has received in as many months. In June, Moody’s also changed its outlook on the Fridley, Minn.-based medical device goliath from stable to negative.
Despite S&P’s reservations about the short term, analysts reaffirmed the company’s solid “AA-” rating, which reflects its belief that MDT’s problems are more likely to be short-term in nature. Typically ratings agencies will change a company’s outlook to reflect concern over financial metrics and projected performance. While a change in outlook doesn’t mean that the overall rating of the company will change, it is essentially putting the company on notice that the rating could change in the next 12 to 18 months.
“The ratings on Medtronic reflect our expectations that the company will drive more meaningful revenue growth in the medium term as a result of acquisitions, ongoing product launches, and geographic expansion,” Standard & Poor’s credit analyst Cheryl Richer said in a prepared release. “We believe Medtronic is well positioned to address technology challenges, competitive threats, and litigation risk.”
In an email to MassDevice Medtronic spokesman Steven Cragle said that while the firm couldn’t predict how investors might react to the ratings change, he “didn’t expect any material cost as a result of this negative outlook.”
In June, Cragle told us that Medtronic had already recognized the softness in both its CDRM and spine business and has been actively pursuing higher growth markets as a result.
“We’re continuing to shift from flat to high growth markets such as diabetes and neuromodulation,” he told us at the time.
On Wednesday, MDT competitor St. Jude Medical (NYSE:STJ) reported flat sales on its cardiac rhythm management business during the second quarter.
“U.S. CRM sales fell into a pot hole,” Dan Starks, president & CEO of St. Jude Medical, said in a conference call with investors.
