Medtronic (MDT +0.79%), a medical device specialist, has performed well this year. That's despite the threat of tariffs, which are having a material impact on its earnings. However, its financial results have been strong despite this headwind, and its outlook for the next year remains bright.
Things got even better recently when Medtronic received U.S. regulatory clearance for a device that could become an important growth driver for the healthcare giant. Let's look more into it, and decide whether these developments make Medtronic an attractive stock to invest in.
Image source: Getty Images.
Entering the robotic-assisted surgery market
Medtronic began developing the Hugo system, a robotic-assisted surgery (RAS) device, over 10 years ago. The company identified a tremendous underpenetrated opportunity in the RAS market, because the adoption of these machines has been insufficient to meet the volume of procedures eligible for robotic assistance.
As management observed in 2023, fewer than 5% of surgeries that can be done robotically are being done so, even though RAS confers benefits. Robot devices help perform minimally invasive surgeries. They use tiny instruments inserted inside patients' bodies through small incisions. They don't require large incisions to gain direct access to organs, as with open surgeries.
The Hugo system was in use for years in various countries, but it had yet to receive clearance in the United States -- the most lucrative market. That's changed now. Medtronic recently announced that the Hugo system has been approved for use in urologic procedures in the U.S. What does this mean for Medtronic's financial results?
Challenging the market leader
The Hugo system will have to face off against Intuitive Surgical's da Vinci system in this indication. It's worth pointing out that urology was the da Vinci system's third-largest specialty in the U.S. as of last year, and the largest outside the U.S. So, this market represents a non-negligible percentage of Intuitive Surgical's revenue from the da Vinci system, by far its most significant growth driver. What does that mean for Medtronic?
The company will have to convince healthcare facilities to opt for the Hugo over the more established (and more thoroughly studied in real-world procedures) da Vinci system. It will also take time for Medtronic's new device to ramp up procedure volume.
NYSE: MDT
Key Data Points
But assuming 10% of Intuitive Surgical's $8.35 billion was from urologic procedures -- and giving Medtronic a 10% share of that ($835 million) -- the resulting amount would hardly make a dent in the company's $34.76 billion trailing-12-month revenue. And again, it will take Medtronic some time to reach that 10% market share. In other words, the Hugo system's approval shouldn't make much of a material impact on its financial results in the next year.
Think long-term
However, that doesn't mean this milestone is meaningless. Here are three reasons why.
First, Medtronic will seek indications beyond urology. It has already tested the device in hernia repairs. New indications have been a key driver of procedure volume growth for Intuitive Surgical. The same should, eventually, apply to Medtronic's Hugo system.
Second, as already mentioned, the RAS market is severely underpenetrated. Increased adoption of the technology will help Medtronic's installed base for the Hugo system grow. Over time, the company should generate consistent revenue from this device, particularly as procedure volumes increase.
Third, the world's aging population should provide even more growth fuel to the healthcare sector, as well as to this niche of the industry, and by extension, to Medtronic.
But does all this make Medtronic stock a buy? The company's strong financial results, growth drivers beyond its RAS ambitions, and excellent dividend program make it attractive to patient, long-term income seekers.
Medtronic has increased its dividend for 48 consecutive years. In a couple more years, it will be a Dividend King -- a corporation that has offered its shareholders dividend hikes for at least 50 straight years. And it should continue to boost its dividend annually for many years to come. Despite the tariff problem, I feel the stock is a buy.
