Mad Hedge Biotech and Healthcare Letter
June 8, 2023
Fiat Lux
Featured Trade:
(THE AI INFUSION)
(MDT), (NVDA), (GEHC), (LLY)
Posts
Curious about the true potential of AI to drive earnings growth in the healthcare industry?
Let me paint you a picture of how AI's transformative power is set to revolutionize medical products and services. Imagine cutting-edge devices that can detect diseases at their earliest stages, leading to increased adoption by healthcare facilities.
And what does that mean for the companies behind these remarkable tools? More revenue, of course.
It is no surprise that experts predict exponential growth for AI in the healthcare market. This sector is projected to skyrocket at a compound annual growth rate of 47%, reaching a staggering $100 billion by 2030.
One company that has embraced this inevitable shift is Medtronic (MDT), a leading player in the medical device industry.
With a robust portfolio of innovative products, Medtronic has witnessed steady revenue growth over the years.
In fact, in its most recent fiscal year, the company invested a whopping $2.7 billion, equivalent to 8.6% of its sales, in research and development (R&D) to fund over 200 clinical trials. These trials cover a wide range of medical conditions, from diabetes management to a host of other ailments.
Thanks to its extensive product lineup, this Ireland-based medical device giant impacts the lives of approximately 76 million patients annually.
In recent times, however, Medtronic has faced a significant challenge: a lack of substantial growth. Hence, the company has taken decisive measures to address this issue by streamlining its operations and making strategic acquisitions to unlock future revenue potential.
This is undoubtedly encouraging news. But there's an additional factor that has everyone buzzing with excitement these days: artificial intelligence (AI).
Thus far, Medtronic has successfully implemented AI across its diverse platforms, revolutionizing how it caters to patients, from delivering precise insulin dosages to individuals using their continuous glucose monitoring systems to refining the outcomes of intricate spinal surgeries.
The company's endeavors in the field of AI have even garnered accolades.
Actually, Medtronic's groundbreaking AccuRhythm AI algorithm technology recently secured the prestigious "best new monitoring solution" award from MedTech Breakthrough. This remarkable innovation significantly enhances the quality of data derived from cardiac monitors, benefiting individuals with abnormal heart rhythms.
Moreover, Medtronic recently forged a partnership with NVIDIA (NVDA).
This collaboration aims to enhance the capabilities of Medtronic's GI Genius endoscopy tool, which already employs AI to detect pre-cancerous tissue.
By enabling third-party developers to train and test AI models that could eventually be integrated into the GI Genius, this strategic alliance holds immense potential for future advancements in the field.
Recognizing the transformative impact of AI, Medtronic envisions it as a pivotal element in the future of healthcare. The company considers AI to be the linchpin of personalized medicine, and this belief holds considerable merit.
Evidently, AI's remarkable capacity to predict and anticipate medical issues or outcomes on an individualized basis aligns seamlessly with the very essence of personalized medicine.
Naturally, Medtronic isn't the sole player in this groundbreaking realm of investment.
Take, for instance, GE Healthcare (GEHC), which recently obtained approval for its revolutionary deep-learning technology aimed at enhancing PET/CT scan images. Major pharmaceutical giants like Eli Lilly (LLY) have also joined forces with AI technology companies to expedite their drug-discovery endeavors.
When you consider the extensive integration of AI within Medtronic's operations, though, the company emerges as a frontrunner in this field. Its AI initiatives have already contributed to notable growth in specific sectors.
Just look at its gastrointestinal (GI) business, which experienced a remarkable 16% increase in the latest quarter, thanks to the strong adoption of the innovative GI Genius technology. Additionally, Medtronic's neuroscience division, encompassing its spine surgery products, witnessed a respectable 6% growth.
This success story doesn't end there.
With its recent dividend increase marking the 46th consecutive year of such a move, Medtronic is on the verge of achieving Dividend King status.
What's even more enticing is the current valuation of Medtronic's stock, trading at a modest 16 times forward-earnings estimates. This presents a compelling opportunity for investors, considering the company's significant advantages.
For one, even if overall growth may not be skyrocketing at the moment, Medtronic continues to generate impressive billion-dollar earnings. On top of that, and perhaps most intriguingly, Medtronic has positioned itself at the forefront of a potentially game-changing new market.
Taking all of this into account, there has never been a better time to consider investing in Medtronic. I suggest you buy the dip.
Mad Hedge Biotech and Healthcare Letter
March 14, 2023
Fiat Lux
Featured Trade:
(A MARKET LEADER SELLING AT A DISCOUNT)
(GE), (GEHC), (MTD), (DHR), (BSX), (TMO)
The spanking new multibillion-dollar healthcare spinoff from General Electric (GE) is gradually turning into a favorite in the industry.
The healthcare company, GE HealthCare (GEHC), was officially spun out of GE last January 4, but its shares began trading around mid-December. To date, GEHC is up about 30%. The stock has been trading for roughly 23 times its projected earnings in 2023.
While that value is already above the market multiple, GEHC is still anticipated to boost its earnings at an average of approximately 15% per year until 2026.
GEHC’s fourth-quarter earnings report was pretty solid. The company recorded $4.94 billion in revenue, rising by 8% year over year compared to the previous $4.59 billion. Most of the growth came from its imaging division, which climbed 11% from $2.44 billion to $2.71 billion thanks to the increasing demand.
For this year, GEHC is projected to generate over $19 billion in sales. This estimate is conservative since the company has yet to gain traction on Wall Street. Given its solid performance thus far, the company is expected to post a higher figure in the coming months.
Not much is known about GEHC yet. Aside from being an Illinois- based healthcare company focusing on medical technology, healthcare software and analytics, patient monitoring systems, and medical equipment maintenance and repair services, the spinoff only describes itself as “a leading global precision care innovator.”
That’s a relatively vague explanation that could cover much ground, but it appears to be focused on artificial intelligence (AI) in healthcare. After all, this is a lucrative and growing market that has sustained the ever-increasing demand.
Based on its records, GEHC generates the majority of its revenue from ultrasound and imaging services and products. These segments comprise about 75% of the company’s overall revenue. The rest are from various services, including clinical networking systems and financial solutions.
At the moment, more than 4 million of GEHC’s products are installed across the globe, lending support to over 2 billion patients since 2022.
Although this sounds less exciting than the other developments in the healthcare industry, the total addressable market for the medical imaging segment is impressively huge.
In 2021, this market was projected to reach $28 billion and will reach $47.4 billion by 2030. This represents a promising compounded annual growth rate of 4.9%. Critical to this growth and expansion is the climbing number of chronic diseases, which triggered earlier and more frequent checkups.
GEHC notably ensures that it sustains its momentum and gains a larger market share. The company has invested aggressively in research and development, allocating $2.7 billion to this effort alone from 2020 to 2022.
In February, the spinoff shelled out $3 billion to acquire Caption Health, a healthcare technology company developing AI software for medical imaging. The company's flagship product, Caption AI, is an FDA-approved medical imaging software that uses AI to guide healthcare professionals in acquiring and interpreting ultrasound images.
Basically, Caption AI is designed to help healthcare professionals who may need more specialized training in medical imaging, such as primary care physicians and nurses, to accurately and confidently perform and interpret ultrasound exams.
Apart from those, Caption Health's AI technology can assist in acquiring cardiac, lung, abdominal, and musculoskeletal images. It is intended to improve patient access to quality care by reducing the need for specialized medical personnel to conduct ultrasound exams.
By leveraging AI, these services could increase the speed and accuracy of diagnoses and treatment, ultimately improving patient outcomes. Needless to say, this deal significantly bolstered GEHC’s lineup and is expected to generate more than enough revenue to cover the price the company paid for the acquisition.
Despite its promising performance, GEHC remains under the radar and underappreciated. Comparing it to its peers, such as Mettler Toledo (MTD), Danaher (DHR), Boston Scientific (BSX), and Thermo Fisher (TMO), the company’s valuation looks discounted. Considering that it has the potential to become a long-term compounder, I suggest you buy the dip.
