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Medtronic Keeps Capturing High-Growth Markets: Time to Buy MDT Stock?
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The past month has been quite encouraging for Medtronic (MDT - Free Report) investors. Solid first-quarter fiscal 2025 organic growth performance and several strategic initiatives to revamp the bottom line, including the COGS cost-out programs, while maintaining pricing and maximizing efficiencies, seem to have boosted market sentiment.
Added to this, growing optimism surrounding the Fed’s approach toward an imminent rate cut in September acts as a strong impetus in driving the stock price. All these have nullified the ongoing impact of global geopolitical pressure, primarily disruptions around the Red Sea, which have significantly increased freight costs and shipping lead times, spelling trouble for Medtronic and other medical device players.
Over the past month, shares of Medtronic have gained more than 12%, steering ahead of the benchmark’s 2% growth, the broader industry’s 8.8% rise and the sector’s 3.7% growth. The company also strongly outperformed its key rivals like Boston Scientific (BSX - Free Report) , Abbott (ABT - Free Report) and Becton, Dickinson and Company or BD (BDX - Free Report) over the past 30 days.
One-Month Price Performance of MDT
Image Source: Zacks Investment Research
MDT Gets Golden Crossover Support
MDT stock has traded significantly above its 200-day moving average since July 26, 2024. The stock witnessed a golden crossover on Sept. 9, 2024, and since then, the 50-day moving average has been ahead of the 200-day moving average. This can be a piece of good news for MDT investors, signaling “support” for a continued uptrend.
MDT Above the 50 and 200-day SMA
Image Source: Zacks Investment Research
Factors Driving Medtronic Shares
Medtronic is strategically expanding its global presence to address the unmet demand for advanced medical devices. A series of strategic product launches are particularly helping the company to enjoy MedTech's most attractive markets like AFib, Structural Heart, robotics, neuromodulation, hypertension and diabetes. AI application across the portfolio has further enhanced market demand for MDT products.
Medtronic's Dividend Track Record
Image Source: Zacks Investment Research
While the Cardiovascular segment is seeing strong growth within the Micra leadless pacemaker franchise and Aurora line of defibrillation solutions, in MedSurg, Medtronic is scaling the production of Hugo RAS.
Innovations and market expansion efforts are helping it offset the impact of supply disruptions and cost escalations. Within Neuromodulation, currently, the company is fast gaining traction, primarily banking on Brain Modulation, which is benefiting from the continued launch of Percept RC with Brain Sense technology — the only complete sensing-enabled DBS system available in the market. Further, the Inceptiv platform has proved to be a game changer in chronic pain therapy.
Diabetes is another area of significant growth for MDT. In the United States, the company is benefiting from the ongoing rollout of the MiniMed 780G system. The company is also hopeful about high market acceptance following the recent full market release of the Simplera Sync sensor in the European market.
Medtronic’s strong liquidity position should allow it to meet its near-term debt obligations. Medtronic apparently looks quite burdened by debt, with total debt (including the current portion) of $27.87 billion as of July 26, 2024. The company’s cash and cash equivalents were $7.8 billion at the end of the first quarter of fiscal 2025. Although the quarter’s total debt was much higher than the corresponding cash and cash equivalent level, the short-term payable debt of $1.55 billion remains lower than the short-term cash level. The company’s times interest earned ratio too is at an impressive level of 7.7 indicating that Medtronic is well capable of paying the interest on its business debts on time.
Further, Medtronic, as a popular dividend-paying stock, managed to increase its quarterly dividend for the 47th straight quarter this May. Effective May 22, 2024, Medtronic's board of directors approved an increase in its cash dividend for the first quarter of fiscal year 2025, raising the quarterly amount to $0.70 per ordinary share. This represents an annual amount of $2.80 per ordinary share. The current payout ratio stands at 52.9%. This compares with the payout rate of the industry, which stands at a lower level of 36.8%.
All these factors support our bullish stance on the stock.
Cheap Valuation
Meanwhile, if we look at the value components, MDT has a Value Score of B at present.
This is evident from the Price/Earnings ratio. MDT shares currently trade at 16.30X forward earnings, well off its five-year high of 30.08X and below the median of 17.36X. The stock is also trading significantly below the industry’s 21.88X.
Image Source: Zacks Investment Research
The company is also trading at a significant discount to its peers like BSX, whose current P/E is 31.76X, and ABT, whose current P/E is 23.49X. This suggests that investors may be paying a lower price relative to the company's expected earnings growth.
Two Major Stumbling Blocks for Medtronic
Sino-U.S. Trade Complications to Mar Growth: Medtronic, which earns a significant percentage of revenues from China, is currently grappling with the 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.
Margin Pressure: Like its peers, Medtronic is currently affected by the industry-wide increase in costs and expenses stemming from geopolitical concerns. Although inflation stabilized a bit during the fiscal first quarter, it is still higher than the historical trend. The continued increase in raw material and labor costs and oil price volatility are denting the company’s profit. Further, a rising interest rate leading to increasing borrowing costs is concerning. In the first quarter of fiscal 2025, gross margin contracted 76 basis points to 65.1% on a 5.1% rise in the cost of revenues. Further, selling, general and administrative expenses rose 1.6% year over year. Adjusted operating margin contracted 25 bps year over year to 23%.
Our Take: Hold MDT Stock for Now
Despite the company’s several recent upsides and dividend pay-out trend outperforming the industry standard, the ongoing 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 Keeps Capturing High-Growth Markets: Time to Buy MDT Stock?
The past month has been quite encouraging for Medtronic (MDT - Free Report) investors. Solid first-quarter fiscal 2025 organic growth performance and several strategic initiatives to revamp the bottom line, including the COGS cost-out programs, while maintaining pricing and maximizing efficiencies, seem to have boosted market sentiment.
Added to this, growing optimism surrounding the Fed’s approach toward an imminent rate cut in September acts as a strong impetus in driving the stock price. All these have nullified the ongoing impact of global geopolitical pressure, primarily disruptions around the Red Sea, which have significantly increased freight costs and shipping lead times, spelling trouble for Medtronic and other medical device players.
Over the past month, shares of Medtronic have gained more than 12%, steering ahead of the benchmark’s 2% growth, the broader industry’s 8.8% rise and the sector’s 3.7% growth. The company also strongly outperformed its key rivals like Boston Scientific (BSX - Free Report) , Abbott (ABT - Free Report) and Becton, Dickinson and Company or BD (BDX - Free Report) over the past 30 days.
One-Month Price Performance of MDT
Image Source: Zacks Investment Research
MDT Gets Golden Crossover Support
MDT stock has traded significantly above its 200-day moving average since July 26, 2024. The stock witnessed a golden crossover on Sept. 9, 2024, and since then, the 50-day moving average has been ahead of the 200-day moving average. This can be a piece of good news for MDT investors, signaling “support” for a continued uptrend.
MDT Above the 50 and 200-day SMA
Image Source: Zacks Investment Research
Factors Driving Medtronic Shares
Medtronic is strategically expanding its global presence to address the unmet demand for advanced medical devices. A series of strategic product launches are particularly helping the company to enjoy MedTech's most attractive markets like AFib, Structural Heart, robotics, neuromodulation, hypertension and diabetes. AI application across the portfolio has further enhanced market demand for MDT products.
Medtronic's Dividend Track Record
Image Source: Zacks Investment Research
While the Cardiovascular segment is seeing strong growth within the Micra leadless pacemaker franchise and Aurora line of defibrillation solutions, in MedSurg, Medtronic is scaling the production of Hugo RAS.
Innovations and market expansion efforts are helping it offset the impact of supply disruptions and cost escalations. Within Neuromodulation, currently, the company is fast gaining traction, primarily banking on Brain Modulation, which is benefiting from the continued launch of Percept RC with Brain Sense technology — the only complete sensing-enabled DBS system available in the market. Further, the Inceptiv platform has proved to be a game changer in chronic pain therapy.
Diabetes is another area of significant growth for MDT. In the United States, the company is benefiting from the ongoing rollout of the MiniMed 780G system. The company is also hopeful about high market acceptance following the recent full market release of the Simplera Sync sensor in the European market.
Medtronic’s strong liquidity position should allow it to meet its near-term debt obligations. Medtronic apparently looks quite burdened by debt, with total debt (including the current portion) of $27.87 billion as of July 26, 2024. The company’s cash and cash equivalents were $7.8 billion at the end of the first quarter of fiscal 2025. Although the quarter’s total debt was much higher than the corresponding cash and cash equivalent level, the short-term payable debt of $1.55 billion remains lower than the short-term cash level. The company’s times interest earned ratio too is at an impressive level of 7.7 indicating that Medtronic is well capable of paying the interest on its business debts on time.
Further, Medtronic, as a popular dividend-paying stock, managed to increase its quarterly dividend for the 47th straight quarter this May. Effective May 22, 2024, Medtronic's board of directors approved an increase in its cash dividend for the first quarter of fiscal year 2025, raising the quarterly amount to $0.70 per ordinary share. This represents an annual amount of $2.80 per ordinary share. The current payout ratio stands at 52.9%. This compares with the payout rate of the industry, which stands at a lower level of 36.8%.
All these factors support our bullish stance on the stock.
Cheap Valuation
Meanwhile, if we look at the value components, MDT has a Value Score of B at present.
This is evident from the Price/Earnings ratio. MDT shares currently trade at 16.30X forward earnings, well off its five-year high of 30.08X and below the median of 17.36X. The stock is also trading significantly below the industry’s 21.88X.
Image Source: Zacks Investment Research
The company is also trading at a significant discount to its peers like BSX, whose current P/E is 31.76X, and ABT, whose current P/E is 23.49X. This suggests that investors may be paying a lower price relative to the company's expected earnings growth.
Two Major Stumbling Blocks for Medtronic
Sino-U.S. Trade Complications to Mar Growth: Medtronic, which earns a significant percentage of revenues from China, is currently grappling with the 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.
Margin Pressure: Like its peers, Medtronic is currently affected by the industry-wide increase in costs and expenses stemming from geopolitical concerns. Although inflation stabilized a bit during the fiscal first quarter, it is still higher than the historical trend. The continued increase in raw material and labor costs and oil price volatility are denting the company’s profit. Further, a rising interest rate leading to increasing borrowing costs is concerning. In the first quarter of fiscal 2025, gross margin contracted 76 basis points to 65.1% on a 5.1% rise in the cost of revenues. Further, selling, general and administrative expenses rose 1.6% year over year. Adjusted operating margin contracted 25 bps year over year to 23%.
Our Take: Hold MDT Stock for Now
Despite the company’s several recent upsides and dividend pay-out trend outperforming the industry standard, the ongoing 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.