Giant in medical equipment Medtronic (NYSE: MDT) has been a bit of a stock market laggard over the past five years, in part due to disruptions caused by the pandemic. Even outside of this global issue, the healthcare giant has struggled to grow its revenue and profits fast enough to excite investors. If its latest earnings report is any indication, however, Medtronic appears to be headed in the right direction, at least in what will likely be its most important business in terms of boosting revenue growth.
Let’s take a look at whether it’s worth buying Medtronic shares given these developments.
The fastest growing segment strikes again
Medtronic’s business is diversified. The company has dozens of devices across four main segments: medical-surgical, neuroscience, cardiovascular and diabetes. While Medtronic has been posting consistent profits, its revenue growth has been less than impressive, a phenomenon that predates the pandemic.
In its latest report, for the first quarter of fiscal 2025, which ended July 26, Medtronic’s revenue rose 2.8% year over year to $7.9 billion. Medtronic’s best-performing segment in this division was diabetes, with revenue in this unit coming in at $647 million, up about 11.8% from the same period last year.
Diabetes is Medtronic’s smallest segment by revenue, but it’s been growing faster than the rest of its business for a while now. Part of the recent boost is thanks to Medtronic’s newest insulin pump, the MiniMed 780G, which was approved in the U.S. in April 2023. One of the device’s biggest selling points is that it features an automated insulin delivery system (AID) that makes life easier for people with diabetes. For the past two quarters, the 780G has been the top-rated AID by dQ&A, a diabetes research company.
There’s more good news for Medtronic. The company recently received U.S. approval for a continuous glucose monitoring (CGM) system called Simplera. It also announced a partnership with Abbott Laboratoriesone of the world leaders in the CGM market. Abbott will be responsible for delivering a CGM compatible with Medtronic devices, which will be sold exclusively by the latter. In other words, Medtronic continues to innovate and advance its diabetes business.
In five years, it is expected to account for a much larger share of total revenue and contribute to improved revenue growth.
The future is slowly but surely taking shape
Diabetes is a global epidemic that affects about half a billion adults worldwide. And some have predicted that this number will continue to rise, as it has done over the past few decades. There will continue to be a pressing need for products that make life easier for these patients. Medtronic is one of the more prominent companies in this niche, which could provide it with a significant tailwind in the long run. It won’t happen overnight, but it’s already happening.
That won’t be Medtronic’s only growth opportunity, though. The company is still testing its robotic-assisted surgery (RAS) device, the Hugo system. As Medtronic noted last year, robotic surgeries account for less than 5% of total procedures that can be performed as such, so there’s still a huge runway there. Again, it could be a few years before the Hugo is approved in the U.S., where it’s currently in testing, though it’s being used in some countries abroad.
So it will take some patience, but Medtronic’s financials, which aren’t terrible now, should eventually improve. Of course, the healthcare giant remains a top dividend choice. It has now increased its payouts for 47 consecutive years. It is inching closer to that coveted Dividend King status. Medtronic has a forward yield of 3.13% compared to the S&P 500‘s average of 1.32%. The company is a reliable, stable dividend payer worth owning for a long time.
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Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Abbott Laboratories. The Motley Fool recommends Medtronic and recommends the following options: long January 2026 $75 calls on Medtronic and short January 2026 $85 calls on Medtronic. The Motley Fool has a disclosure policy.
Is Medtronic Stock a Bargain? was originally published by The Motley Fool
