MDT

Where Will Medtronic Stock Be in 3 Years?

Medtronic (NYSE: MDT) is a leading medical device company that aims to simplify patients' everyday lives. And with a broad presence that spans 150 countries, treating more than 70 health conditions, Medtronic has the potential to be a great healthcare investment to buy and hold.

Unfortunately, the company has battled multiple headwinds in recent times, which has led to uninspiring financials and a disappointing stock performance. In the past three years, shares of Medtronic have fallen by 24%. Can the next three years be better ones for the stock, or are there fundamental problems with Medtronic's business?

Can Medtronic investors expect consistent growth?

A big problem with Medtronic recently has been that the top line hasn't shown much growth. In its most recent fiscal year (ended April 30, 2023), the company's revenue totaled $31.2 billion and trailed the $31.7 billion that it reported a year earlier.

There have been significant disruptions in the healthcare industry over the past few years due to COVID-19 and people not going in-person to doctor's offices. Supply chain issues have also impacted the industry, and as a result, there have been multiple headwinds for Medtronic and other healthcare companies.

The medical device maker's most recent results, however, do offer some hope. On Tuesday, Medtronic posted its third-quarter update. Revenue for the three-month period ended Jan. 26 totaled $8.1 billion, good for a year-over-year increase of 4.7%.

The launch of new products and a stronger, more stable healthcare industry seems to suggest that Medtronic is back on a more positive path forward. In Q3, the company reported positive year-over-year growth across all of its major segments: diabetes (12.3%), cardiovascular (6.1%), neuroscience (4.8%), and medical surgical (3.9%).

With Medtronic continuously launching new products and the global senior population rising, there's little reason to doubt that the business should be able to continue growing for the foreseeable future. Analysts from Fortune Business Insights project that until the end of the decade, the worldwide medical device market will expand at a compound annual growth rate of 5.9%. And with Medtronic being a leader, it's in a great position to capitalize on that trend.

Becoming a leaner, more profitable business

Not all medical devices are worthwhile for Medtronic to offer, however. The company is exiting its ventilator product line, which it says is unprofitable. Medtronic is going to merge the remaining parts of its patient monitoring and respiratory interventions segment into a new business unit: acute care and monitoring.

The company believes the move should help improve organic revenue growth and lead to stronger financials overall. And as it exits the ventilator business, it will report any revenue from ventilators in the "other" section of its financials. That separation will begin next quarter.

During the past three quarters, Medtronic has reported earnings of just over $3 billion on revenue of $23.8 billion, good for a profit margin of 12.6%. The company already has a fairly strong profit margin, but if it can build on these numbers, that will bode well for investors because better earnings can help the stock achieve greater gains.

Should you buy Medtronic stock?

Medtronic does appear to be moving in the right direction. The business is growing on all fronts, and it's getting leaner and exiting an unprofitable product line. And with a more stable and consistent healthcare industry, the company is in an excellent position to benefit from ongoing demand for healthcare devices. Three years from now, this should be a larger, more profitable business than it already is now.

The stock should also be sporting a higher valuation. Shares of Medtronic are currently trading at just 16 times the company's estimated future profits, which is below the healthcare sector average of 19. For long-term investors, Medtronic could be an excellent stock to buy and hold in your portfolio for years.

Should you invest $1,000 in Medtronic right now?

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David Jagielski has no position in any of the stocks mentioned. The Motley Fool recommends Medtronic. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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