In the investment world, financial media often focus on tech giants like Apple and Microsoft, overshadowing other equally valuable companies. One such hidden gem is Medtronic (MDT), a leading company in the healthcare products sector with over seventy years of history and a market capitalization nearing $100 billion. Despite not capturing as many headlines as the big tech companies, Medtronic is a significant force in its sector.
Diversification and Sustained Growth
Medtronic operates in four main segments: cardiovascular, neuroscience, surgical, and diabetes. In fiscal year 2024, ending in April, the company reported sales of $32.4 billion, a 4% increase from the previous year. This growth is driven by the aging global population and the increasing demand for superior healthcare services.
Medtronic’s diverse product catalog, used in hospitals and by healthcare professionals worldwide, positions the company for continuous long-term growth. Since 1989, Medtronic has demonstrated impressive performance, with a total return of approximately 9,000%, significantly outperforming the S&P 500’s 2,297% over the same period.
Maintaining Leadership in the Spine Market
In the spine market, Medtronic continues to be the leader, though in recent years it has lost significant market share and faced increased competition, particularly from Globus Medical following its acquisition of NuVasive. Recently, Medtronic appears to have responded by refocusing on its customers and sales organization. Potential acquisitions to distance Globus from the rearview mirror should not be ruled out.
Challenges and Resilience
In recent years, Medtronic has faced several challenges, including pandemic-induced supply shortages, inflationary pressures, and market-specific issues like margin reductions in China and product approval delays in the U.S. However, the company has overcome these obstacles by diversifying its supply chain to enhance future income stability.
The diabetes segment, which had been a source of difficulties, has seen a recovery with a 10% increase in sales last fiscal year, thanks to the recent FDA approval for its diabetes control devices in the U.S. This growth is expected to accelerate with increased sales of insulin pumps and recurring benefits from insulin and sensors.
An Attractive Long-Term Investment
Medtronic’s current valuation is significantly lower than its peers, presenting an attractive opportunity for long-term investors. The company offers a dividend yield of 3.5% and has maintained a history of consecutive annual dividend increases for 47 years. Additionally, the company repurchases its shares, having bought back $2.1 billion worth last year.
Strategic Initiatives and Promising Future
Medtronic is investing in high-growth, high-margin business areas, such as its new robot-assisted surgery platform, Hugo RAS. This platform, in clinical trial phase in the U.S., promises significant future revenue through equipment sales and associated services.
In summary, both growth-oriented and value-focused investors can find an opportunity in Medtronic. With a price-to-earnings ratio (P/E) of less than fifteen, significantly lower than the industry average, Medtronic is poised to generate high total returns through income growth, substantial dividends, and potential P/E multiple expansion.