The investment news website Seeking Alpha has 128 investor conference-call transcripts listed under the stock ticker symbol for Medtronic PLC, but it doesn’t seem to have one from Medtronic’s announcement of Omar Ishrak as its new chief executive in 2011.
A new CEO is a big deal, of course, but it makes sense that Medtronic didn’t host a call back then. After all, the new boss just got there, so what was an investor supposed to learn?
Without really trying to, Medtronic proved the wisdom of that 2011 decision by actually going ahead with an early morning conference call last week for investors and analysts. It followed news that former JPMorgan Chase analyst Michael Weinstein came aboard as a new senior vice president of strategy.
Even carefully rereading the eight-page transcript of the call backward, a trick learned from watching spy movies, didn’t reveal an obvious key insight. Weinstein seems happy about the new job, happy to mostly take stock for pay and happy enough where he lives that he won’t be moving here, near Medtronic’s Fridley headquarters.
This story could have been a simple one, a prepared quote in a news release with Ishrak sounding like the pro football coach who chose “the best athlete on the board” with the No. 1 draft pick, a player so talented that the team will be better no matter what position he plays.
Instead Medtronic played it far bigger, clearly wanting to show how serious its executives are about increasing the stock price, although this was always couched in terms of creating “shareholder value.” And here was Weinstein to help.
Unfortunately that only invited more questions.
You can’t fault people in the investment community, by the way, for paying a lot of attention to Weinstein’s career. Weinstein was so well respected in his profession that he’s literally a hall of famer, joining Institutional Investor magazine’s hall five years ago.
The term analyst, though, isn’t necessarily the best way to describe what these people do. It’s more a well-paid sales job. They are not paid to sell stock, exactly, but to sell their “ideas” to mutual fund managers, hedge funds and the like.
The best of them become genuine experts on the industries they follow, conversant in everything from top-level strategy down to product price and features. And with one foot in the world of investments, they need to master what causes capital to flow in and out of stocks or industries.
The best paid of these people take all that knowledge and then build relationships, really making it rain investment banking fees and trading commissions for the investment banks that employ them.
Somebody like Weinstein seems best suited to serve right away as a sort of internal consultant, looking both outside the company for opportunities as well as helping decide what should be done differently with the assets Medtronic already has.
As respected as Weinstein is, though, you could tell just by the questions asked of Ishrak and Medtronic CFO Karen Parkhill last week that the analysts weren’t sure what Weinstein would be doing at Medtronic to create shareholder value.
Right out of the chute, Ishrak was asked if Medtronic was now going to adopt a practice of aggressive portfolio-asset management, meaning culling the herd of poorly performing product lines or business units.
“Well, first, don’t read anything imminent into this announcement,” Ishrak replied. How about the diabetes treatment and devices business? Nope, it’s a very important line of business. New strategy? No again, Ishrak replied, although he said Medtronic is always looking to apply a little fine tuning.
Weinstein noted that he couldn’t say much because they were in the period between the end of Medtronic’s last fiscal year and the announcement of the financial results. He did, however, try to caution everybody not to expect any big announcements at Medtronic’s annual event for institutional investors and analysts in early June.
How this thin soup could have been satisfying to the analysts is a little hard to fathom, although the stock appreciated more than 4 percent that day. What they clearly got from this news was that one of their own, and the best in the business, issued the ultimate “buy” rating on Medtronic by going to work for it.
And this stock sure could use a boost. The company has been consistently profitable the last few years, but without the kind of earnings growth that lifts stock prices. Medtronic stock has underperformed not only the S&P 500 the last couple of years but also some of its closest industry peers.
By one important measure — the ratio of the stock price compared with the expected earnings per share — Medtronic shares at about 16 times expected earnings per share trail the likes of Boston Scientific, Abbott Laboratories and Edwards Lifesciences, according to data from Thomson Reuters.
Weinstein assured the audience last week that there are many ways to create value for investors. The most likely ways, though, can be counted on the fingers of one hand.
Using less capital can work, which typically means buying back stock to give capital back to shareholders. Sales growth works, too, although growth isn’t easy to come by for big companies in a mature industry. Then there’s always boosting earnings and cash flow by reducing costs.
Earlier this year Medtronic announced “a multiyear global enterprise excellence program,” and its description in a securities filing leaned on the words enhancing, leveraging, integrating and optimizing to describe it.
While that’s not particularly illuminating, the filing went on to say that the goal was to eliminate $3 billion in annual cost by the end of the company’s April 2022 fiscal year. That’s a big number, even for a company that may spend roughly $22 billion in the next full fiscal year on cost of goods sold and operating expenses.
So it appears that Medtronic seems to have already decided on one thing to do about lagging shareholder value. And without any help from Mike Weinstein.