Is Medtronic Stock a Buy Now?

Companies that can withstand market volatility make for good long-term investments. Ireland-based Medtronic (NYSE: MDT), a major player in the medical device industry, has repeatedly demonstrated this over time. For years, the company has steadily increased its revenue and earnings, allowing it to maintain a stable business. This has enabled it to pay and raise dividends consistently for the past 46 years.

On Aug. 22, Medtronic reported another strong quarter. Let’s take a look at its fiscal 2024’s first-quarter results to see why it’s a good investment right now.

A strong start to another year

Medtronic operates in 150 countries and manufactures devices that treat nearly 70 medical conditions. Its products are made under four segments: cardiovascular, medical-surgical, neuroscience, and diabetes.

Demand for elective procedures has dropped since the global pandemic, affecting companies that manufacture products used in these procedures. These short-term challenges slightly slowed down the company’s progress.

To address these challenges and drive growth, Medtronic implemented an “aggressive transformation” strategy in 2023, which appears to be working well. Management predicted in February that short-term headwinds would fade and the company would resume growth in the coming quarters. Based on its first-quarter results, it appears to be correct.

Total revenue increased 4.5% year over year to $7.7 billion in the first quarter of fiscal 2024 (ended July 28). Its adjusted earnings per share (EPS) rose by 6% to $1.20 compared to the same quarter last year. The rebound in procedure volumes and growth across all of its segments, according to management, contributed to this quarter’s performance.

Given that demand for elective procedures is now back to normal, Medtronic anticipates fiscal 2024 to be a successful year and raised the guidance. It now expects revenue growth of 4.5% for the full fiscal year. Adjusted EPS could be in the range of $5.08 to $5.1.

The icing on the cake is its dividend

Another intriguing aspect of Medtronic that may appeal to investors is that it is a dividend stock. Medtronic has had its share of ups and downs in the industry. Even so, it has maintained a profitable business, as evidenced by consistent dividend payouts and increases over the last 46 years. It could soon be given the prestigious title of Dividend King, which is bestowed upon companies that have increased their dividends for at least 50 consecutive years.

In its previous quarter, the company hiked its dividend to $0.69 per share from the earlier payout of $0.68, making its 46th dividend hike. In the past 10 years, its dividend has increased by 146%. Its 3.3% dividend yield is significantly higher than the S&P 500‘s 1.7% average dividend yield.

In the most recent quarter, Medtronic generated $521 million in free cash flow, which should suffice to cover dividend payments and any growth plans in the coming quarters. The business is still committed to returning shareholders 50% of free cash flow.

Is the stock a buy now?

Experts believe the global medical device market could grow at a compound annual rate of 5.5% between 2022 and 2029, reaching $719 billion.

Medtronic’s business could flourish in the medical devices sector with its innovative and diverse portfolio. Plus, its successful international product Hugo has helped it enter the burgeoning robotic surgery market. Management said in the previous quarterly earnings release the device will soon be introduced to the American market.

Although Intuitive Surgical has a monopoly in this market, the robotic surgery opportunity hasn’t been fully explored yet. Here, Medtronic might have a lot of room for expansion. The company also has a solid balance sheet. At the end of the quarter, it had $1.3 billion in cash and cash equivalents and long-term debt of $24 million.

Medtronic is a compelling example of a growth stock that also enables investors to earn consistent income. Currently, it is trading 12% below its 52-week high. It might not be too late to buy this healthcare stock.

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Sushree Mohanty has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Intuitive Surgical. The Motley Fool has a disclosure policy.

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