Shares of Medtronic (MDT -0.76%) responded poorly to the company's latest quarterly results announcement. The market knocked the stock about 5% lower on May 23, but some analysts who follow the medical device manufacturer recognized some positive signals.
Wells Fargo analyst Larry Biegelsen raised the bank's price target on Medtronic by $3 to $105 per share and maintained a positive rating. The new target implies a gain of about 29% from recent prices.
Investors who buy Medtronic now could realize big gains if Biegelsen's prediction comes true. If he's wrong and the stock tanks this year, a legendary dividend program gives shareholders a great chance to come out ahead over the long run.
Here's a closer look at the road ahead for Medtronic to see if it could be a smart addition to your portfolio right now.
Why income-seeking investors adore Medtronic
At recent prices, Medtronic stock offers a 3.4% dividend yield, and investors can reasonably expect their quarterly payments to rise for many years to come. On May 23, the company raised its quarterly dividend for the 47th year in a row.
Medtronic's latest payout raise was a $0.01-per-share bump up to $0.70 per share. The company's recent pace of dividend raises hasn't been terrific, but its payout has risen a reasonable 21% over the past five years.
Medtronic benefits from strong advantages in the lucrative market for innovative medical devices. For example, its MiniMed 780G System earned approval from the Food and Drug Administration to monitor blood sugar levels for patients with diabetes and automatically deliver insulin as needed.
Convincing the FDA that a new device is both effective and safe enough to unleash on the public is a complicated endeavor. Professionals with backgrounds in both medicine and the regulatory process regarding medical devices are rare, but Medtronic probably employs more than any of its peers.
Why Wall Street is bullish for Medtronic
Medtronic plowed $2.7 billion into research and development over the past 12 months, and its previous investments are paying off well. In its fiscal fourth quarter, the company earned FDA approvals for a new trans-aortic valve replacement system and a new spinal cord stimulator. In China, it received approval for a kidney-stimulating device that lowers blood pressure. The company also submitted applications for a new ablation catheter and a new constant blood glucose monitor.
Last year's approval of the MiniMed 780G System helped push fourth-quarter diabetes segment sales 11% higher year over year. With a slate of recently launched products, management expects total revenue to rise by 4% to 5% in fiscal 2025. On the bottom line, adjusted earnings per share are expected to increase by 4% to 6% this year.
In addition to developing traditional devices, Medtronic is partnering with Nvidia to build an artificial intelligence (AI) platform for a new endoscopy product called GI Genius. This is the first AI-aided polyp detection system on the market.
A buy now?
Medtronic has new products to launch, but this is a company made of many pieces moving in different directions. Expecting long-term growth above a mid-single-digit percentage isn't reasonable.
At recent prices, you can buy Medtronic for about 21.1 times management's earnings expectation for fiscal 2025. That isn't a great price for a business likely to grow by a mid-single-digit percentage over the long run, but it is fair. So for most income-seeking investors, adding some Medtronic shares to a diversified portfolio now isn't a bad idea.
