Medtronic (MDT +0.25%) is a top medical device company that generates billions in profits. Its operations span the globe, with the business having a presence in 150 countries while serving 72 million patients. Its devices have an important role in the medical industry.
However, the healthcare stock itself isn't doing too well lately. In just the past year, it has declined 33% (the S&P 500 has fallen just 11%), and today it trades near its 52-week low. Is this simply a bad stock to own, or could it be an underrated buy for long-term investors?
NYSE: MDT
Key Data Points
Latest earnings were underwhelming
On Aug. 23, Medtronic reported its first-quarter results of fiscal 2023. For the period ended July 29, the company's net sales of $7.4 billion declined 7.7% from Q1 of last year. Even when factoring out the impact of foreign exchange, each of the company's major business units was down from a year ago. Medical surgical sales fell by 8.9% followed by a 1.3% drop in cardiovascular and a 1.1% dip in neuroscience products. The only segment that generated growth was diabetes, but even that was barely positive, rising just 0.3%.
Medtronic blamed the underwhelming numbers on supply chain shortages, as well as difficult comparable numbers from the previous year, when the business benefited from an increase in revenue from its ventilators. Despite the uninspiring quarter, however, the company still projects organic revenue growth of between 4% and 5% for the full fiscal year. And it forecasts that adjusted diluted earnings per share will be within a range of $5.53 to $5.65, which means profits could be up slightly from the $5.55 adjusted per-share earnings it reported in the previous fiscal year.
Overall, it wasn't a great quarter for Medtronic, and it may have been a disappointing one for investors hoping that a return to normal could send the business in a positive direction and turn the stock price around. However, in future quarters, the numbers should improve.
Are there any growth catalysts that can help?
The good news for investors is that there are developments that should lead to better growth for Medtronic in the long haul. Within just the past 12 months, the company has obtained more than 200 product approvals in key markets, including in the U.S., China, and Japan.
In May, the company also completed its acquisition of Intersect ENT, which makes products that are used in ear, nose, and throat procedures. Medtronic sees an opportunity from the acquisition to focus on reaching more patients with chronic rhinosinusitis, where sinuses become inflamed. The condition impacts 1 in 8 adults in the U.S., and Intersect has products that can help surgeons in treating it.
Another catalyst could simply be the supply chain as its starts to get moving again. Medtronic noted in its recent results that it is seeing improvements in the supply chain, which should lead to stronger revenue numbers from all of its business units.
As a result of all these potential catalysts, the company could be on the cusp of better financial results in the not-too-distant future.
Is Medtronic a cheap buy?
Investors are bearish on Medtronic based on its near-term results. However, in the bigger picture, the company still generates great numbers -- net income of $5.2 billion over the trailing 12 months was 17% of revenue. During that time, the medical device maker also generated over $5.7 billion in free cash flow.
For long-term investors, there's some solid value in Medtronic's stock. It offers a dividend yield of 3% (double the S&P 500 average of 1.5%) and trades at a forward price-to-earnings ratio of 16, which is in line with what investors are paying for the average healthcare stock.
Although Medtronic may not be a cheap buy in that respect, it isn't overpriced and the stock could still be a good long-term investment. Between its dividend and the catalysts that could drive growth for the business in the future, things should look better for Medtronic in the months and years ahead.
