Where Will Medtronic Stock Be in 1 Year?

Medtronic (NYSE:MDT) is a major manufacturer of medical devices, including surgical tools, insulin pumps, pacemakers and spinal implants.

With a valuation of well over $100 billion and annual sales exceeding $30 billion, there is little doubt that Medtronic is a market leader in the medical device industry.

The stock, however, has lagged the market over the last year, rising by just 2.6% amid a generally bullish cycle. Where will Medtronic stock be in one more year, and can this flagship medical company break out of its current rut?

How Is Medtronic Performing?

While Medtronic certainly isn’t growing at a rapid pace, the results it delivered in its most recent earnings report are at least respectable. Management reported year-over-year quarterly revenue growth of 4.7% to $8.1 billion. Net income, meanwhile, rose by 8% to a total of $1.3 billion.

Looking back over the last year, Medtronic has maintained strong, stable profitability. Net margins in the trailing 12-month period have averaged 13.0% with a return on equity of 13.7%.

In light of earnings and cash flows of $3.14 and $7.37 per share, respectively, Medtronic continues to deliver solid bottom-line results for investors.

Where Will Medtronic Stock Be in 1 Year?

According to 28 analysts, Medtronic stock can rise by 10.9% over the next year to $94.10 per share.

The S&P 500, meanwhile, is expected to rise by about 8.5% more from its current levels in 2024.

Based on other metrics, Medtronic appears to have a reasonably fair valuation at the moment. At 16.5x forward earnings and 11.7x cash flow, Medtronic trades at an attractive level for a mostly mature, non-cyclical company.

The price-to-sales ratio of 3.5x is a bit high, especially in light of the industry average of 1.7x but strong net margins and stable earnings likely make it worth this premium to revenue.

Will Medtronic Earnings Rise?

While Medtronic’s earnings are expected to increase over the coming 12 months, the rate of gains could be fairly slow.

Analysts project an earnings growth rate of just over 2% in the forward 12-month period, a figure that is unlikely to ignite shareholder enthusiasm.

Looking at the 5-year time horizon, the expected growth rate increases to 5.3%, but this forward growth may not be enough to significantly shift MDT share prices this year.

Is Medtronic Worth Buying For Its Dividend?

So far, MDT looks like a decent stock to own but not one that is likely to beat the market by much over the coming year. This view, however, only takes into account share price appreciation.

In addition to this, investors must also consider the stock’s 3.2% dividend yield. Though Medtronic’s dividend payout ratio is quite high at about 88%, the company’s 47-year history of dividend increases makes it quite likely that shareholders will continue to see a steady flow of cash from the medical devices manufacturer.

It’s also useful to note how high MDT’s dividend is in comparison to the S&P 500 average. At the moment, the benchmark index yields just 1.4%, less than half of MDT’s dividend.

While the S&P 500 may edge out Medtronic over the coming year in terms of appreciation, this advantage in dividends may well help to close the gap between the two while providing MDT shareholders with a consistent stream of investment income.

Pitfalls of Owning Medtronic?

While there is much to like about Medtronic, the firm’s revenue growth has largely plateaued in recent years.

Though there has been a slight upward trend, quarterly revenues have stayed within a fairly narrow range for most of the last decade.

This trend could be a concern for long-term investors, as the company will eventually need a catalyst to kickstart an upward trend.

MDT is also taking on debt to fund its plans for future expansion. The company saw double-digit year-over-year increases in its long-term debt in 2023, a fact that may concern investors.

The upside to the financial engineering is that Medtronic has significant experience in managing debts effectively. Long-term debt today is still lower than it was when it peaked in 2015, and the trend for much of the time since then has been one of debt reduction.

Nonetheless, it is slightly worrying to see debt ticking up again. The current obligations are likely manageable and could fuel the company’s growth initiatives.

What Is Medtronic’s Growth Plan?

While stagnant revenues over much of the last decade may raise red flags for investors, management is currently attempting to correct that problem.

The core of the new growth strategy is global expansion, bringing Medtronic’s portfolio of medical device offerings to markets around the world. At the same time, the company is expanding its product base to capture new revenues.

Management credited this plan with much of the growth in the most recent quarter. That quarter also saw a group of new FDA approvals that could help Medtronic grow in the long run.

New product approvals included devices intended for the management of diabetes and hypertension, both widespread, chronic conditions.

The Bottom Line

Based on Medtronic’s prospects in the upcoming year, it seems reasonable to suppose that the stock will rise towards analysts consensus estimate. Though Medtronic is unlikely to experience rapid earnings growth over this period, a continuation of modest expansion paired with the prospect of higher growth rates over the next several years will likely allow MDT to keep pace with the market as a whole.

Combined with a higher-than-average dividend yield, these returns would likely make MDT an attractive option for conservative, income-focused investors.

On a longer time frame, MDT’s investments in global growth and new products could provide stronger earnings growth and, by extension, more significant upward pressure on share prices.

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