Leaner Medtronic easier to appreciate
Medical equipment maker Medtronic (NYSE: MDT) recently reported respectable third-quarter earnings, despite our ailing economy.
Sales of cardiac rhythm disease management devices, including pacemakers and implantable cardioverter defibrillators (ICDs), fell 4 percent. The division is still suffering from the fallout of a 2007 recall of one of its ICDs, which helped competitors Boston Scientific and St. Jude Medical grab market share last year (both increased their ICD sales by 8 percent year over year in their most recent quarters).
Medtronic’s biggest boost came from a 10 percent increase in sales of cardiovascular products, thanks to sales of its drug-eluting stent, Endeavor, which wasn’t on the U.S. market in the year-ago quarter. The company recently launched a new delivery system for the stent that doctors prefer, which should help Medtronic fend off a push from Abbott Labs and Boston Scientific as they try to continue taking market share.
Combined sales were up just 2.6 percent. But the company did cut costs, helping it boost adjusted earnings per share by 13 percent. Meanwhile, Medtronic increased spending on research and development while still increasing operating margins.
The company won’t be able to cut forever, but the leaner Medtronic is easier to love, and stronger revenue growth should return as the company continues to launch new products.
Ask the Fool
Q: Are stocks with high earnings per share (EPS) better than ones with lower EPS? – S.K., Syracuse, N.Y.
A: In many ways, the earnings per share amount is meaningless, by itself. Here’s why. Imagine that Home Surgery Kits Inc. (ticker: OUCHH) has total net income of $10 million this year. If it has 10 million shares of stock outstanding, then its EPS is $1 ($10 million divided by 10 million is 1). If it issues more stock and suddenly has 12 million shares outstanding, its EPS will be lower, at $0.83 ($10 million divided by 12 million is 0.83).
You could be looking at two terrific, healthy, growing companies, each of which sports the same net income amount. If one has half as many shares as the other, its EPS will be twice as big. That doesn’t mean that it’s a better or worse company, and there’s no perfect number of shares for a company to have. Some companies have billions of shares, and some have millions.
It’s better to just check that the EPS has been rising over time and to examine many other numbers, too. Also, keep in mind that even net income isn’t always as meaningful as you might think, since a company’s earnings can be manipulated legally via various accounting maneuvers.
Q: How can I look up a company’s ticker symbol? – I.O., Elkhart, Ind.
A: One easy place to look is on your computer. Type the company name into a search box at any major financial Web site, such as http://finance.yahoo.com, http://finance.google.com, http://caps.fool.com or www.morningstar.com, and you’ll get the symbol. At such sites, you can look up all kinds of information on a company.
My dumbest investment
My biggest failures have involved refusing to capture big gains. Take Sun Microsystems, where I was working in 2000. It was on a tear, and dot-coms were booming. I was flush with gains and thinking, “Jeez, the taxes I would have to pay if I sold.” Well, all told, I missed $200,000-plus in unrealized gains. The stock plunged when the Internet bubble burst, and I ended up with pennies of gains instead of cashing out a big winner. Coulda, woulda, shoulda. My take-away here is that you MUST sell when one stock represents a large percentage of your portfolio. Paying taxes means you’re making money. All wasn’t lost though. I did buy Apple at $20 and sold for my down payment to purchase my home. – Fred M., Reston, Va.
The Fool Responds: There are different schools of thought on this. Some say to let your winners run, while others recommend selling after a certain gain. If a stock is way overvalued, selling is right. If you’re not sure, you might compromise and sell a portion of your holding, to lock in some gains.