VALUATION HIGHLIGHTS
- Neuroscience constitutes 42% of the Trefis price estimate for Medtronic's stock.
- Medical Surgical constitutes 36% of the Trefis price estimate for Medtronic's stock.
- Cardiac Rhythm Management constitutes 17% of the Trefis price estimate for Medtronic's stock.
WHAT HAS CHANGED?
Note: Medtronic's fiscal year ends on April 30
- MDT Stock vs. S&P 500 Performance
MDT stock has underperformed the broader market in each of the last four years. Returns for the stock were -10% in 2021, -23% in 2022, 10% in 2023, and 0% in 2024. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, 24% in 2023, and 23% in 2024 — indicating that MDT underperformed the S&P in 2021, 2022, 2023 and 2024.
- Q3 Fiscal 2025 Performance
Medtronic posted a 2.5% revenue rise in Q3 fiscal 2025, led by an 8.4% growth in Diabetes, 4.4% rise in Neuroscience, and a 3.7% growth in Cardiovascular sales. Medical Surgical segment sales were down 1.9%. The company's earnings of $1.39 on a per share and adjusted basis were up 7% from $1.30 in the prior-year quarter.
- Diabetes Care Sales
Medtronic's diabetes care sales grew from $1.8 billion in fiscal 2015 to $2.5 billion in fiscal 2024, and they are expected to grow to around $4.0 billion by the end of our forecast period.
However, the sales growth has stalled in recent quarters due to delays in the approval of new products in the U.S. Looking forward, there are high hopes for Medtronic's most advanced insulin pump system MiniMed 780G to drive its diabetes sales in the future. The product is now launched in the U.S.
POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE
Below are key drivers of Medtronic's value that present opportunities for upside or downside to the current Trefis price estimate for the company's stock:
Neurological Products
- Medtronic's Neuroscience: revenue has increased marginally from $8.2 billion in fiscal 2019 to $9.9 billion in 2024, led by higher sales for its Cranial & Spinal Technologies and Specialty Therapies.
We forecast mid-single-digit annual growth in revenues to the north of $12 billion by the end of our forecast period. However, if the company sees growth at a faster pace in low-double-digits and revenues reach north of $17.0 billion, it would result in a 15% upside to our price estimate. If the company fails to see strong growth in the business and sees revenue remain around $9 billion, it would translate into a downside of around 5% to our price estimate.
Medtronic's Gross Profit Margin
- Medtronic's Gross Profit Margin: Medtronic's Gross Margin gradually declined from 76% in 2011 to 66% in 2024 due to increasing competition, reduced reimbursements, and other pricing pressures.
We forecast the company's gross margin to improve slightly from the current levels to 70% by the end of our forecast period. However, if the company manages to reduce costs and improve pricing, and margins reach historical highs of 76% by the end of our forecast period, it would translate into an upside of 10% to our price estimate. However, if the pricing pressure amid competition weighs on gross margins, and they decline further to around 65%, it would translate into a 15% decline in our price estimate.
BUSINESS SUMMARY
Headquartered in Dublin, Ireland, Medtronic plc. supplies self-manufactured medical devices and therapies to treat more than 30 chronic diseases across 150 countries in the world. Medtronic operates in the following broad segments - Cardiac and Vascular Group (Cardiac Rhythm & Heart Failure, Coronary & Structural Heart, Aortic & Peripheral Vascular), Minimally Invasive Technologies Group (Surgical Solutions, Patient Monitoring, and Recovery), Restorative Therapies Group (Spine, Neuromodulation, Neurovascular, Surgical Technologies) and Diabetes Group. The company is a global leader in the Cardiac Rhythm Disease Management, Spinal, and Neuromodulation segments. Its main competitors are Johnson & Johnson, Boston Scientific, and Abbott.
SOURCES OF VALUE
Relentless Portfolio Diversification
Medtronic continuously launches new and innovative products in the market to retain or increase its market share. In 2018, the FDA approved Medtronic's Remodulin to treat patients with Pulmonary Arterial Hypertension. It also secured approval for Less-Invasive Heart Pump Implant Procedure for its HVAD system. These approvals should aid the future growth.
Acquisitions For Business Expansion
Through a few strategic acquisitions, Medtronic has expanded its business and increased its market share. It acquired Crospon, an endoscopic diagnostics company, in Feb 2018. Crospon offers tools to diagnose and measure gastroesophageal motility disorders. Earlier in 2015, Medtronic acquired Covidien for approximately $50 billion. In the past, it acquired Ardian for $800 million and Osteotech for $123 million in 2011 to boost its Cardiovascular and Spinal sales, respectively.
KEY TRENDS
Geographical Expansion
Medtronic is witnessing an increasing share of international sales that have mainly come from China, India, and Brazil. Medtronic's revenue from outside the U.S. account for nearly half of its overall net sales.
Healthcare Reform Could Impact Selling Prices
Stringent healthcare regulations have implemented checks on the pricing structure of medical device companies, which is expected to negatively affect the profits of the industry.
