Dividend Growth Gem Medtronic Posts A Decent Q1

| About: Medtronic plc (MDT)

Medical device maker Medtronic (NYSE:MDT) 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 U.K., and Ireland. The firm's U.S. 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 share in the U.S. 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 (NASDAQ:ISRG) in the portfolio of our Best Ideas Newsletter.

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.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: MDT is included in our Dividend Growth portfolio.