Like all growth stocks, medical device maker Medtronic (MDT 0.62%) had a difficult 2022, with its stock plunging 25%. However, 2023 appears to be off to a good start for the company. The stock is up 8%, compared to a 4.5% gain for the S&P 500.
On Feb. 21, the company reported its third-quarter fiscal 2023 results, with a positive outlook for the rest of the year. Let's dig into its quarterly results to determine if Medtronic is a good buy right now.
MDT EPS Diluted (Annual) data by YCharts
Preparing to end fiscal 2023 on a high note
Medtronic is a renowned medical device company with four divisions: cardiovascular, medical-surgical, neuroscience, and diabetes. Based in Ireland, it operates globally in around 150 countries and treats nearly 70 medical conditions. Despite the ups and downs that the healthcare industry is prone to, the company has maintained its business stability for years, steadily increasing revenue and diluted earnings per share (EPS), as the chart above depicts.
Its most recent quarterly results were slightly affected by the "continued unfavorable macroeconomic impact of foreign currency translation and inflation," according to management. Total revenue in the third quarter of fiscal 2023 (which ended Jan. 27) was flat year over year at $7.7 billion, while adjusted earnings per share fell 4% to $1.30. Its cardiac and neuro divisions' organic revenue growth, on the other hand, both increased by 7% year over year.
Medtronic's management expects revenue growth to remain stable in the coming quarters as short-term headwinds fade. It ended the quarter with $2.5 billion in free cash flow, which should help fuel its growth strategies and dividend payouts this year.
A passive income stock
Medtronic is an income stock as well as a growth stock. The company increased its quarterly dividend by 8% to $0.68 per share in December, marking 45 straight years of dividend increases.
Medtronic's dividend yields 3.2%, which is higher than the 1.7% average yield of the S&P 500. It has a payout ratio of 50%. Management is confident that the rest of the year's revenue rebound will allow it to continue returning to shareholders.
Long-term prospects are spectacular
Medtronic is also expanding into robotic surgery, which is currently a burgeoning market that could be a growth driver in the coming years. Minimally invasive surgery is becoming more popular because it means shorter hospital stays, minimal scars, and fewer complications.
Medtronic has launched its robotic-assisted device, Hugo. Its device recently received CE mark clearance in Europe, which permits it to be sold for urological and gynecological procedures in the region.
In October 2022, the company announced that Hugo had gained access to international markets when it was approved for general laparoscopic indications in Canada and urological and gynecological indications in Japan.
In December 2022, the Hugo RAS system was used to perform the first robotic-assisted urological procedure in the U.S. The device is currently only available in the United States for research purposes and is not for sale.
In its recent quarter, the company saw positive sales momentum for Hugo in international markets. If Hugo is successful, it could be a good competitor to Intuitive Surgical's da Vinci system, which is currently dominating the robotic surgery market.
In 2022, Medtronic ranked first among the top-10 medical device companies in the world (as ranked by annual revenue).
The "buy and hold" investment strategy considers the effect of compounding. Investing in stocks of stable companies such as Medtronic allows your money to grow. Being a strong dividend stock also provides investors with regular income. It has kept its business stable for many years, allowing it to pay consistent dividends.
The medical device industry is just getting started and has a lot of potential. The global medical device market is expected to grow at a compound annual rate of 5.5% between 2022 and 2029, reaching $719 billion.
Medtronic has a diverse product portfolio with long-term opportunities, and a track record of returning cash to shareholders, making it an appealing buy right now.
