Medtronic (MDT 0.62%) is one of the largest medical equipment makers in the world with 95,000 employees across 150 countries and a market capitalization of $108 billion. The company's stock is up a little more than 6% so far this year. While that's below the S&P 500's rise of nearly 16%, the company is outperforming many of its healthcare peers, who as a sector are down more than 3% so far this year.
Over the past decade, the Dublin, Ireland-based company has increased annual revenue by 83%, but its shares have only risen 53% over that period. The stock deserves a second look as it is not only a solid income stock, but also one with growth potential, thanks in part to the company's use of artificial intelligence (AI).
Here are three things about the company that smart investors know:
1. AI isn't just a buzzword for Medtronic
The company is using machine learning to enhance its product offerings. One of Medtronic's most prominent AI offerings is its GI Genius endoscopy module, a computer-assisted detection system for colorectal cancer. The GI Genius uses AI to help find colorectal polyps, including lesions -- small polyps that can be missed by the human eye. The company said its research shows that the GI Genius module can increase the detection of adenoma detection rates by up to 14.4%. When polyps are found while still small, the survival rate for colorectal cancer improves considerably.
Another key Medtronic product that is using AI is the company's LINQ insertable cardiac monitor with AccuRhythm. The device supports long-term monitoring of heart rhythms, using AI algorithms to improve alert accuracy. The result is a reduction in the number of false alerts regarding atrial fibrillation (AF), a rapid or inconsistent rhythm in the heart's upper chambers, as well as false alerts for asystoles (long gaps between heartbeats, caused by an electrical failure of the heart).
According to Medtronic, the cardiac monitor was able to reduce false AF alerts by 74.1% and gave better clarity for true AF alerts. The company also said it lowered false pause asystole alerts by 97.4% and was 100% accurate in measuring true pause alerts.
Medtronic also sees potential for AI in making better patient decisions in non-invasive endovascular surgery. In August, the company began a pilot program with Cydar Medical at as many as 40 sites using 3D aortic maps from Cydar along with Medtronic's endovascular aortic products.
The company's diabetes product line is also leaning heavily into AI to improve automated insulin-delivery systems. Its 780G insulin pump, combined with its Guardian continuous glucose management (CGM) system, uses advanced algorithms based on a patient's real-time glucose levels, cutting down on glucose fluctuations for patients.
In 2020, the company bought Companion Medical, which made the first Food and Drug Administration (FDA)-approved smart insulin pen that uses glucose sensor data to aid patients with type 1 diabetes who need multiple daily injections.
2. Medtronic takes its dividend seriously
Medtronic raised its quarterly dividend by 1.4% this year to $0.69 per share, the 46th consecutive year it has increased its dividend. In four more years, the company is on track to be a Dividend King, one of the handful of companies that have raised their dividends for 50 consecutive years.
This level of consistency shows that Medtronic is a well-managed company with stable yet growing revenue along with the product diversity to withstand various market challenges. And the dividend increases haven't just been for show as the dividend has grown 146% over the past decade.
The stock's current yield is about 3.33%, which is more than double the S&P 500's payout of 1.54%. One concern is that the payout ratio is a bit high at 82%, but considering the company's consistently growing revenue, that's not a major worry. The company has also spent $4 billion since 2021 on share repurchases, thereby increasing the value of its stock to current shareholders.
3. Medtronic's earnings are on the rise
Medtronic reported fiscal 2024 first-quarter earnings on Aug. 22. Every company division -- except the smallest one called "other" -- saw revenue gains.
Overall, the company reported first-quarter revenue of $7.7 billion, up 4.5% year over year, led by its diabetes division, which reported quarterly revenue of $578 million, up 6.8% year over year. The medical surgical ($2.04 billion in revenue) and cardiovascular ($2.85 billion) segments each saw 5.5% increases in revenue.
The company, which suffered during the pandemic when elective procedures nearly ground to a halt, is now seeing an uptick in medical procedures and an improved supply chain. Even a reduced rate of hospital spending and an economic slowdown in China haven't dimmed the company's earnings.
Medtronic updated full-year guidance to show organic revenue rising 4.5% and earnings per share (EPS) climbing 7% at the midpoint to be between $5.08 and $5.16. Moreover, the company has stepped up its pace of product approvals, with 125 new FDA clearances over the past 12 months. All in all, there is plenty for investors to like about Medtronic today.
