Based in Ireland, Medtronic plc. (MDT) is one of the largest producers of medical devices in the world. The company is known for its product innovations in the Cardiac and Vascular Group segment, Minimally Invasive Technologies Group segment, Restorative Therapies Group and Diabetes Group segments. Earlier this month, the company was named to Fortune’s 2021 World's Most Admired Companies List. In Fortune’s Medical Products and Equipment industry, MDT is ranked #4.
The company has been witnessing revenue growth lately based on rising surgical procedures that were deferred last year due to the COVID-19 pandemic.
The stock has gained 17.3% over the past six months to close Friday’s trading session at $119.74 after hitting its 52-week high of $119.88.
We expect MDT to keep soaring based on the following factors:
Subsiding COVID-19 Risks
MDT was hard hit by the COVID-19 pandemic as patients deferred surgical procedures and limited their visit to hospitals. However, as COVID-19 risks are gradually subsiding, hospitals are witnessing a resumption in demand for regular surgeries.
According to an analysis by Emergen Research, the global medical device connectivity market is expected to reach a value of $6.36 billion by 2027, growing at a CAGR of 24.3%. With this, MDT is expected to witness significant growth going forward.
Sequential Growth Across All Segments
The company’s worldwide revenue increased 17.5% sequentially to $7.65 billion for the fiscal 2021 second quarter, ended October 30, 2020. Its revenue from its Cardiac & Vascular Group increased 12% sequentially, while its revenue from its Restorative Therapies Group increased 20.5% sequentially over the same period. Its revenue from its Minimally Invasive Therapies Group was reported to be $2.29 billion, representing a 6.7% year-over-year increase, and its Diabetes Group’s revenue increased 2.1% sequentially. Its non-GAAP EPS increased 64.5% sequentially to $1.02.
FDA Approvals
In January, MDT U.S. Food and Drug Administration (FDA) approval for its DiamondTemp Ablation (DTA) system. The system treats patients with recurrent, symptomatic paroxysmal atrial fibrillation (AF) and who have been unresponsive to drug therapy. The DiamondTemp system is the first FDA-approved, temperature-controlled, irrigated radiofrequency (RF) ablation system with diamonds currently available to deliver ablations.
The FDA also cleared the use of the company’s Midas Rex high speed drills, which further strengthens MDT’s leadership in navigated robotic spine surgery. In October 2020, the FDA approved the company’s Abre venous self-expanding stent system.
Favorable Analyst Outlook
Analysts expect the company’s revenue to increase 35.2% for the quarter ending April 31, 2021, 3.5% in 2021 and 8.6% in 2022. Its EPS is expected to grow 146.6% for the quarter ending April 31, 2021, 38.8% in 2022 and at a rate of 10.3% per annum over the next five years.
Wall Street analysts expect the stock to reach $129.29 in the near term, which represents a potential 8.9% upside.
POWR Ratings are in Favor
MDT has an overall rating of B, which equates to Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight different categories. Among these categories, MDT has a B grade for Sentiment. This is consistent with analysts’ expectations that the company will generate significant revenue and EPS in the upcoming months.
Moreover, the stock also has a B grade for Stability. The stock is also rated for Growth, Value, Momentum and Quality. Click here to get all of MDT’s ratings.
The stock is ranked #51 of 181 stocks in the C-rated Medical - Devices & Equipment industry.
Click here to access several other top-rated stocks in the same industry.
Bottom Line
MDT is strategically positioned to generate significant returns in the near term. The company is focused on geographical diversification of its business and product innovation. At a trailing-12-month p/s ratio of 5.77x (versus the industry average 9.04x), we think it wise to bet on the stock now because it has plenty of upside.
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MDT shares were unchanged in after-hours trading Tuesday. Year-to-date, MDT has gained 2.17%, versus a 4.93% rise in the benchmark S&P 500 index during the same period.
About the Author: Manisha Chatterjee
Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst.
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