The broader market has been stumbling for most of 2022, though it didn't officially find the sleeping bear's den until June. Now we find ourselves in September -- historically the worst-performing month of the year for the market, and already taking a toll on some stocks.
That means one thing for savvy long-term investors: opportunity. One of the companies providing opportunity is Medtronic (MDT 0.41%), a global leader in healthcare technology. The medical-device maker has seen its stock price drop 3% in the first week of September, and much more over the past year. And it's the technology aspect of what the company does that could be partly to blame for the stock's recent fall -- and could get investors to return.
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Year-over-year revenue decline is scaring some investors
The company breaks down its portfolio into four segments: cardiovascular, medical surgical, neuroscience, and diabetes. Revenue decreased across the board from the same quarter last year, but cardiovascular helped to offset some of those declines due to a mid-teens percentage increase in its transformative Micra transcatheter leadless pacemakers, which are being increasingly adopted by the global medical community.
The 34% drop in stock price over the past year is likely overdone as a result of the bear market, and Medtronic may be more of a long-term buy now than it has been since the start of the pandemic. Its share price sits at $89 as of this writing, slightly lower than it was at the start of 2020, and the company's price-to-earnings ratio of 22 is below its historical average of 30.
During Medtronic's recent quarterly earnings report in August, it stated revenue above guidance, and earnings in line with guidance. But where it took a hit in the eyes of investors was in the comparison of revenue with the same period in 2021. The company attributed the decline to raised revenue last year from strong ventilator sales, and from an increase in procedures that had been put off in the previous year -- both consequences of COVID-19.
A drop in revenue can sometimes be tricky to navigate for investors, especially during a broader market decline like we've had in 2022. Getting a grasp on the true cause for the decline is crucial. But in the face of supply challenges and a decline in revenue, the company maintained its full-year guidance on revenue, which should return investor confidence and trigger a not-too-distant turnaround.
The company expects improvements in the supply chain to help offset the challenges it faced in the past year. During that year it also received 200 regulatory approvals for new technologies, along with an approval in June from the Food and Drug Administration (FDA) for its spinal surgery device LigaPass 2.0, which adds to a portfolio of products it can use to help patients and providers for years to come.
An expanded technology portfolio should lead a turnaround
It's this technology aspect of Medtronic that may have exaggerated the negative impact on its stock price, as tech stocks got hammered at the height of the bear market -- though many healthcare provider stocks, such as UnitedHealth Group, have fared better. Top tech stocks like Apple and Amazon were down 27% and 42% respectively between December and June, while UnitedHealth was up 15% during that period.
But long-term investors might be wise not to be swayed by a revenue decline for this medical device leader, which is coming out of a healthcare crisis unlike anything most investors have ever seen. A year-over-year revenue comparison is not exactly apples-to-apples unless the environment is unchanged.
Medtronic finished the recent quarter with $2 billion in cash, and the company has shown it's not afraid to use cash to expand its product offerings and to optimize operations. In May, it completed the acquisition of Intersect ENT, which will expand Medtronic's portfolio of ear, nose, and throat products. The two new brands specialized for sinusitis conditions give the company the tools necessary to treat 30 million patients in a market predicted to grow at a compound annual rate of 7.4% through 2027. Medtronic expects this to be a growth driver during that period.
Another acquisition the company is hoping will help drive growth took place in August when it acquired Affera, giving Medtronic its first cardiac ablation and mapping technology platform. This bolsters its current portfolio of cardiology products and services focused on treating a broad spectrum of arrhythmias. Atrial fibrillation leads this disease segment, affecting 60 million people worldwide, with the treatment market expected to reach nearly $13 billion by 2027 at a compound annual growth rate of 11.93%.
Medtronic shares with its investors
As investors look toward future growth for Medtronic, the current environment provides the opportunity to get into the stock at a great time, with shares down over 30% in a year. There's cash on hand to support acquisitions to expand. And the company likely sees value in its current stock price, having spent $336 million on share repurchases this past quarter, on top of $2.5 billion spent on repurchases last year.
Medtronic is also paying out its next quarterly dividend of $0.68 per share on Sept. 21; its current yield is 3%. After its dividend hike earlier this year, 2022 marks 45 consecutive years of annual dividend increases, cementing its place among the elite Dividend Aristocrats. The company plans to return 50% of free cash flow to shareholders this year.
Analysts don't seem fazed by the year-over-year revenue decline, either. Their average 12-month target price is $112, a potential 26% lift over today's price.
