Over the past few years, medical device companies have struggled as the pandemic disrupted much of the industry, and economic problems contributed to lower sales and increasing expenses. Healthcare giant Medtronic (MDT 0.62%) did not escape these headwinds, which partly explains why the company's shares have decreased by 12% over the past 12 months.
Still, Medtronic has plenty of redeeming qualities, especially for investors willing to hold the company's shares for a while. Let's consider three reasons to buy the company's stock right now.
1. Revenue growth should improve
This graph below shows that Medtronic's slow revenue growth problems predate the pandemic. At the start of the outbreak, its top line dropped off a cliff, and it later recouped those losses once the volume of elective surgeries bounced back after declining in the early days of COVID.
Still, Medtronic will have to do better overall on this front, and it is partly to that end that the company is undergoing a bit of a makeover. In October 2022, the healthcare giant announced that it would spin off its patient monitoring and respiratory intervention businesses.
MDT Revenue (Quarterly YoY Growth) data by YCharts
These segments have been growing slower than the rest of Medtronic's operations, so the company expects "modest" organic top-line growth once the separation is complete. The move will decrease the company's diversification. But it leaves a business focused on higher growth segments, and so it may well be worth it. Spinoffs of this type aren't that rare in the healthcare sector, although they don't always work out as intended.
Still, that is just one initiative that shows Medtronic's focus on improving its business. And there is more to look forward to for the company.
2. Growth avenues galore
Medtronic has been around for decades. A healthcare company can hardly survive that long unless it is adept at innovating and adapting to the changing demands of the industry. Medtronic has been doing just that, and the company should continue conjuring up new ways to improve its business, better serve patients, and deliver more robust growth.
Let's consider two growth avenues at the company's disposal. The first is arguably the hottest topic on Wall Street: artificial intelligence (AI). Following ChatGPT's meteoric rise to fame, AI is on every investor's mind. However, the technology goes beyond its generative text capabilities displayed by apps like ChatGPT. Medtronic argues that there are many ways in which AI can improve the way we deliver care, for instance, by better training physicians.
Medtronic's Touch Surgery is an AI-powered video management and analytics platform that trains surgeons to perform various procedures. The company also believes AI can help improve the accuracy with which physicians detect and treat various conditions. That is the spirit behind the AI algorithm it integrated within its LINQ II Insertable Cardiac Monitor (ICM). An ICM is a device inserted under the skin designed to monitor the patient's cardiac rhythm and detect whether it speeds up or slows down too much.
Medtronic's AI algorithm helped significantly reduce the number of false alerts of its ICM device. The company will continue to invest in AI in ways that could meaningfully and substantially contribute to its financial results over the long run.
Here's another growth opportunity for the company: robotic-assisted surgery (RAS). Medtronic has developed its Hugo system, which is in use in some countries in South America, Europe, and Asia but isn't yet cleared in the U.S.
Still, this represents a massive opportunity because, as Medtronic notes, fewer than 5% of surgeries that could be done robotically are currently using this technology. That's despite the advantages for patients, including less cutting of the skin, less scarring, faster recoveries, and shorter hospital stays.
While Intuitive Surgical is currently the leader here, Medtronic doesn't need to take any market share away from its competitor to be successful, considering how underpenetrated the space is. RAS could provide plenty of growth fuel to the company in the coming years.
There are other opportunities, of course, in diabetes care, for instance. The point is that Medtronic should be able to improve its financial results as it capitalizes on these opportunities.
3. Nearing Dividend King status
Medtronic is a terrific dividend stock. It has increased its payouts for the past 45 years, an impressive feat.
MDT Dividend data by YCharts
Medtronic is now close to joining the most exclusive, prestigious group of dividend payers on the market: Dividend Kings. These are companies that have raised their payouts for at least 50 consecutive years. Dividends matter, as reinvesting them can significantly boost long-term returns. For those who prefer a steady stream of passive income, Medtronic can provide that, too.
The stock currently offers a yield of 3.32%, and while its cash payout ratio of almost 79% seems high, Medtronic isn't likely to forego its dividend growth track record. Investors can count on the company to raise its payouts for many more years to come. That's one more reason to buy shares of this top healthcare stock now.
