After A Mixed Q3 Where Does Medtronic Stock Go From Here?

Medtronic (NYSE: MDT) recently announced its Q3 fiscal 2025 results (fiscal ends in April), reporting revenue of $8.29 billion, slightly below the $8.33 billion consensus estimate. Adjusted earnings per share of $1.39 modestly exceeded the expected $1.36. The company noted that lower inventory levels at some distributors affected sales, and they anticipate a similar impact on Q4 results.

MDT stock, with 8% returns since the beginning of 2024, has underperformed the S&P 500 index, up 28%. A slight decline in profitability and narrowing of its full-year outlook in Q2 didn’t bode well for its stock. If you are looking for an upside with a smoother ride than an individual stock, consider the High-Quality portfolio, which has outperformed the S&P, and clocked >91% returns since inception.

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Lower surgical and endoscopic sales weigh on Medtronic’s top-line growth

Medtronic’s revenue of $8.29 billion, was a 2.5% increase year-over-year. The Cardiovascular segment exhibited growth of 3.7%, driven by Micra transcatheter pacing systems, PulseSelect systems, and Affera Sphere-9 systems. The Neuroscience segment demonstrated a 4.4% increase, primarily attributable to double-digit growth in Neuromodulation, including the Inceptiv spinal cord stimulator and Percept RC deep brain stimulator. The Diabetes segment experienced growth of 8.4%, reflecting continued strong demand for the MiniMed 780G automated insulin delivery system. Conversely, the Medical Surgical segment contracted by 1.9%, with declines observed in both surgical & endoscopy and acute care & monitoring sales, influenced by distributor inventory adjustments and decreased market share for Nellcor blood oxygen products.

While Medtronic saw a 90 bps decline in operating margin to 24.3% in Q2, the profitability improved by 190 bps q-o-q and 100 bps y-o-y to 26.2% in Q3. Higher revenues clubbed with margin expansion resulted in earnings of $1.39 per share, up 7% y-o-y. Looking forward, the company reiterated its 2025 outlook with organic revenue growth of 4.75% to 5%, and adjusted earnings to be in the range of $5.44 to $5.50 per share. This compares with the $5.45 consensus bottom-line estimate.

What does this mean for MDT stock?

MDT stock plunged 7% post its Q3 results announcement. In fact, even if we look at a slightly longer timeframe, MDT stock has performed worse than 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.

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Given the current uncertain macroeconomic environment around rate cuts and ongoing trade wars, could MDT face a similar situation as it did in the last four years and underperform the S&P over the next 12 months — or will it see a recovery? Now, from a valuation perspective, despite its recent fall, we think MDT stock has little room for growth. We estimate Medtronic’s Valuation to be $93 per share, just 8% above its current market price of $86. MDT stock is currently trading at 16x expected earnings of $5.47 per share in 2025, aligning with the stock’s average P/E ratio over the last four years.

[1] Returns as of 2/19/2025
[2] Cumulative total returns since the end of 2016

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