5 Things You Need to Know If You Buy Medtronic Today

Medtronic's stock has underperformed since 2021, but the company presents a long-term opportunity due to its diversified business, industry leadership, and attractive 3.25% dividend yield, which is near its historical high. Despite stalled growth, Medtronic is actively working to improve profitability by exiting less profitable business lines, such as the spin-off of its diabetes division, and focusing on research and development to introduce new products.

Analysis

Medtronic (NYSE: MDT), a medical device manufacturer with a market capitalization around $110 billion, has experienced significant stock price underperformance, falling nearly 50% from its 2021 peak and subsequently trading sideways. Despite this, the company presents a long-term investment case based on its large, diversified business with leading positions in cardiovascular products, neuroscience, and medical surgery, and a global operational footprint that allows for phased product introductions. A key strength is Medtronic's status as an industry veteran, evidenced by 48 consecutive years of annual dividend increases, positioning it just two years shy of Dividend King status. The recent stock price decline has pushed its dividend yield to an attractive 3.25%, notably above the S&P 500's 1.3% and the average healthcare stock's 1.8%, and near the higher end of Medtronic's historical yield range. This suggests potential undervaluation, further supported by its price-to-sales, price-to-earnings, and price-to-book value ratios, which are all currently below their five-year averages. The company's growth has stalled in recent years, contributing to this valuation. However, Medtronic is actively addressing this by maintaining focus on research and development for new products and by strategically restructuring, including the planned spin-off of its diabetes division, a move management anticipates will be immediately accretive to earnings due to the division's comparatively lower margins despite its growth.

Key Decisions for Investors

• Investors with a long-term horizon may find Medtronic's current valuation, historically high dividend yield of 3.25%, and consistent dividend growth appealing, particularly given its diversified business and industry leadership.
• Monitor the company's progress on new product introductions resulting from its R&D efforts and the successful execution of the diabetes division spin-off, as these are key potential catalysts for renewed growth and margin improvement.
• Consider that while the article presents a bullish long-term outlook, and The Motley Fool generally recommends Medtronic with specific options strategies, the stock was not included in the Motley Fool Stock Advisor's most recent list of top 10 stocks to buy, suggesting a need for individual due diligence regarding entry points and overall portfolio allocation.