Medtronic (MDT 0.81%) is on a roll. Its shares have soared close to 15% year to date, easily outperforming the S&P 500.
But is Medtronic a stock to consider buying right now? Here are the bull and bear cases for the medical device giant.
The bull case
Keith Speights: Investors are clearly bullish about Medtronic these days. Just look at the medical device stock's performance. They have some good reasons to be upbeat.
Medtronic continues to expand its line of innovative products, recently winning U.S. approval for its next-generation Micra pacemaker. Last week, the company's AccuRhythm AI technology for monitoring heart rhythm data was named the "Best New Monitoring Solution" at the 2023 Medtech Breakthrough Awards.
Applying AI in healthcare presents a massive opportunity for Medtronic. And it's an opportunity the company is pursuing aggressively. Medtronic is already using AI to help surgeons better plan spinal surgeries and detect colorectal polyps that could become cancerous. It also teamed up with Nvidia to deploy AI in early cancer detection.
Don't be surprised if Medtronic enters a new era of stronger growth thanks to its AI initiatives. In the meantime, though, the stock should be attractive to income investors. Medtronic's dividend yield tops 3%, and the company has increased its dividend payout for an impressive 45 consecutive years.
The bear case
Adria Cimino: As an enormous medical device company, Medtronic offers investors a certain degree of safety. There is a steady need for Medtronic's products in healthcare facilities worldwide.
Still, the company hasn't been delivering much growth to investors in recent times. The fiscal third quarter, ended Jan. 27, is a good example. Revenue remained flat year over year. And diluted earnings per share, both generally accepted accounting principles (GAAP) and non-GAAP, fell.
The reason for such sluggishness? Medtronic isn't immune to today's economic difficulties. Rising inflation has weighed on the company's costs. Negative currency impact has also been a problem. Shutdowns in China due to the coronavirus situation weighed on procedure volume, creating another headwind.
Meanwhile, Medtronic is in a phase of transition. The company aims to boost growth by cutting costs, streamlining its businesses, and improving its manufacturing and supply chain platforms. Medtronic also has made some acquisitions that it hopes will add to growth in the coming years. And it's spinning off smaller businesses -- patient monitoring and respiratory interventions -- that have held back growth.
This is positive. But it may not be enough to truly push earnings and the share price higher.
The company boasts many years of dividend increases. Still, investors seeking more certainty about a dividend that will grow over time may opt for a Dividend King. Those are companies that have raised dividends for at least 50 straight years. Medtronic isn't there yet.
The medical device stock trades for less in relation to forward earnings than it did in the past. But it's still more expensive by that measure than rival Johnson & Johnson, for example.
MDT PE Ratio (Forward) data by YCharts
And J&J offers investors its status as Dividend King and a portfolio of blockbuster pharmaceutical products, along with a medtech portfolio. So today, while Medtronic remains a solid stock, it may not be the best choice for growth, dividends, and diversification.
Bull or bear?
So should investors be bullish about Medtronic or bearish? Perhaps the best answer is: both.
The company should have solid growth opportunities in the future. Its dividend is solid. On the other hand, Medtronic could face some stiffer challenges if the economy enters a recession. There are other stocks that could hold up better than Medtronic.
