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Medtronic Loses 5% in a Month: What's Next for MDT Investors?
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Medtronic (MDT - Free Report) closed at $77.12 in the last trading session, reflecting more than a 2% decline from the prior day. Broadly speaking, 2024 has not been smooth for investors in the Medical Products industry. Rising geopolitical pressure, primarily disruptions around the Red Sea, has increased freight costs and shipping lead times, spelling trouble for MDT and several of its direct competitors, like Abbott (ABT - Free Report) and Boston Scientific (BSX - Free Report) , thus putting pressure on their margins.
Thankfully, there has been an improvement in investors’ sentiment over the past month, with IMF’s latest world economic outlook boasting about the global inflation rate declining steadily, from 6.8% in 2023 to 5.9% in 2024. While this has, to some extent, put an end to the downward spiral for most of the MedTech giants, Medtronic failed to keep pace with its peers’ gradual northbound trend.
Over the past month, shares of Medtronic have lost 5.2%, underperforming the industry’s 0.8% decline and the S&P 500’s 3.5% growth. While Boston Scientific and Abbott are gradually gaining momentum (with respective 1.2% and 1% improvement over the past 30 days) on favorable industry forecasts, Medtronic has not recorded any gains due to several company-specific factors.
Sino-U.S. Trade Complications to Mar Growth
Medtronic’s fiscal 2025 outlook particularly played an important role in this continued downtrend. While the company’s fiscal fourth-quarter 2024 and full-year results outperformed the Zacks Consensus Estimate, Medtronic adopted a cautionary stance while providing the fiscal 2025 guidance. The projected numbers fell short of Street estimates, disappointing investors. In fact, we believe Medtronic’s bearish stance might be a result of growing Sino-U.S. trade complications. The 2024 National Trade Estimate report depicted severe concern around this scenario and outlined the overwhelming impact of Chinese volume-based procurement (VBP) and the Made in China 2025 industrial plan on U.S. medical device businesses.
Medtronic, which records approximately 7% of its operational revenues from China (as of fiscal 2024), might face a compromised trade situation in the ongoing fiscal if the trade tension between these two countries does not get resolved any time soon.
Dividend Rises, Stock Doesn't
Medtronic, as a popular dividend-paying stock, managed to increase its quarterly dividend for the 47th straight quarter this May. However, this, too, could not pull up the stock price. This is because despite the company generating a significant profit margin through 2024, the dividend hike was merely a penny per share. Considering the lackluster future projection and the ongoing supply chain issues, we expect a further conservative approach in terms of dividend hikes going forward.
Long-Term Prospects Bright
Although Medtronic has suffered several debacles in recent times, considering the stock’s strong fundamentals and agile moves toward executing its business strategies, we strongly believe these downsides are short-lived.
Medtronic is strategically expanding its global presence to address the unmet demand for advanced medical devices. Within Cardiovascular, Medtronic is gaining market share, banking on product launches. In MedSurg, Medtronic is scaling the production of the Hugo robotic system. For Hugo, the company is expanding regulatory approvals and ramping up installations to see continued progress internationally. Within Structural Heart, Medtronic is gaining from the launch of Evolut FX in Japan and Europe. Innovations and market expansion efforts are helping it largely offset the impact of inflation and supply disruptions.
The company's ENT business within the Specialty Therapies division in the Neuroscience portfolio continues to contribute positively. Further, the company’s Cardiac Pacing business continues to drive growth, banking on strong global growth of its Micra leadless pacemaker. Medtronic’s strong liquidity position should allow it to meet its near-term debt obligations.
In terms of dividends, too, even after considering the company’s slowing rate of dividend hike, the current yield of more than 3.6% outperforms the industry and the sector average. The company’s current payout ratio stands at 53% compared with 36.5% for the industry.
For investor’s note, Abbott’s dividend yield TTM is just above 2.1%. BSX does not pay any dividends.
Medtronic's Dividend Track Record
Image Source: Zacks Investment Research
Cheap Valuation
MDT stock is currently trading at a discount when compared to the Medical Products industry. Its forward 12-month P/E of 13.99X is lower than the industry’s 19.98X at this moment. The stock currently has a Value Score of B.
Should You Invest in Medtronic Right Now?
Despite the company’s several long-term upsides and dividend pay-out trend outperforming the industry standard, the ongoing short-term hiccups in the form of international trade challenges and supply chain issues are limiting this Zacks Rank #3 (Hold) stock’s near-term gains. While current shareholders should hold their positions, new investors should wait for the stock to retract some of its recent gains, providing a better entry point.
Image: Bigstock
Medtronic Loses 5% in a Month: What's Next for MDT Investors?
Medtronic (MDT - Free Report) closed at $77.12 in the last trading session, reflecting more than a 2% decline from the prior day. Broadly speaking, 2024 has not been smooth for investors in the Medical Products industry. Rising geopolitical pressure, primarily disruptions around the Red Sea, has increased freight costs and shipping lead times, spelling trouble for MDT and several of its direct competitors, like Abbott (ABT - Free Report) and Boston Scientific (BSX - Free Report) , thus putting pressure on their margins.
Thankfully, there has been an improvement in investors’ sentiment over the past month, with IMF’s latest world economic outlook boasting about the global inflation rate declining steadily, from 6.8% in 2023 to 5.9% in 2024. While this has, to some extent, put an end to the downward spiral for most of the MedTech giants, Medtronic failed to keep pace with its peers’ gradual northbound trend.
Over the past month, shares of Medtronic have lost 5.2%, underperforming the industry’s 0.8% decline and the S&P 500’s 3.5% growth. While Boston Scientific and Abbott are gradually gaining momentum (with respective 1.2% and 1% improvement over the past 30 days) on favorable industry forecasts, Medtronic has not recorded any gains due to several company-specific factors.
Sino-U.S. Trade Complications to Mar Growth
Medtronic’s fiscal 2025 outlook particularly played an important role in this continued downtrend. While the company’s fiscal fourth-quarter 2024 and full-year results outperformed the Zacks Consensus Estimate, Medtronic adopted a cautionary stance while providing the fiscal 2025 guidance. The projected numbers fell short of Street estimates, disappointing investors. In fact, we believe Medtronic’s bearish stance might be a result of growing Sino-U.S. trade complications. The 2024 National Trade Estimate report depicted severe concern around this scenario and outlined the overwhelming impact of Chinese volume-based procurement (VBP) and the Made in China 2025 industrial plan on U.S. medical device businesses.
Medtronic, which records approximately 7% of its operational revenues from China (as of fiscal 2024), might face a compromised trade situation in the ongoing fiscal if the trade tension between these two countries does not get resolved any time soon.
Dividend Rises, Stock Doesn't
Medtronic, as a popular dividend-paying stock, managed to increase its quarterly dividend for the 47th straight quarter this May. However, this, too, could not pull up the stock price. This is because despite the company generating a significant profit margin through 2024, the dividend hike was merely a penny per share. Considering the lackluster future projection and the ongoing supply chain issues, we expect a further conservative approach in terms of dividend hikes going forward.
Long-Term Prospects Bright
Although Medtronic has suffered several debacles in recent times, considering the stock’s strong fundamentals and agile moves toward executing its business strategies, we strongly believe these downsides are short-lived.
Medtronic is strategically expanding its global presence to address the unmet demand for advanced medical devices. Within Cardiovascular, Medtronic is gaining market share, banking on product launches. In MedSurg, Medtronic is scaling the production of the Hugo robotic system. For Hugo, the company is expanding regulatory approvals and ramping up installations to see continued progress internationally. Within Structural Heart, Medtronic is gaining from the launch of Evolut FX in Japan and Europe. Innovations and market expansion efforts are helping it largely offset the impact of inflation and supply disruptions.
The company's ENT business within the Specialty Therapies division in the Neuroscience portfolio continues to contribute positively. Further, the company’s Cardiac Pacing business continues to drive growth, banking on strong global growth of its Micra leadless pacemaker. Medtronic’s strong liquidity position should allow it to meet its near-term debt obligations.
In terms of dividends, too, even after considering the company’s slowing rate of dividend hike, the current yield of more than 3.6% outperforms the industry and the sector average. The company’s current payout ratio stands at 53% compared with 36.5% for the industry.
For investor’s note, Abbott’s dividend yield TTM is just above 2.1%. BSX does not pay any dividends.
Medtronic's Dividend Track Record
Image Source: Zacks Investment Research
Cheap Valuation
MDT stock is currently trading at a discount when compared to the Medical Products industry. Its forward 12-month P/E of 13.99X is lower than the industry’s 19.98X at this moment. The stock currently has a Value Score of B.
Should You Invest in Medtronic Right Now?
Despite the company’s several long-term upsides and dividend pay-out trend outperforming the industry standard, the ongoing short-term hiccups in the form of international trade challenges and supply chain issues are limiting this Zacks Rank #3 (Hold) stock’s near-term gains. While current shareholders should hold their positions, new investors should wait for the stock to retract some of its recent gains, providing a better entry point.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.