Medtronic Q2 Results: Positive Growth Amid Stock Struggles

Medtronic (NYSE: MDT) recently released its Q2 fiscal 2025 results (fiscal year ends in April), showing revenues and earnings that surpassed analysts’ expectations. The company reported revenue of $8.4 billion and adjusted earnings of $1.26 per share, compared to consensus estimates of $8.3 billion and $1.25, respectively. Medtronic’s continued success is partially attributed to the growing adoption of its innovative products, such as the MiniMed 780G and Evolut FX+. The following sections will detail Medtronic’s Q2 performance and its implications for the company’s stock price.

Analyzing Medtronic’s Q2 Performance

Medtronic’s revenue of $8.4 billion in Q2 represents a 5.3% increase year-over-year. Notably, sales from the MiniMed 780G insulin delivery systems contributed significantly to this growth. Examining specific segments, Neuroscience experienced a 7.1% increase, Cardiovascular saw a 6.1% rise, Medical Surgical grew by 1.2%, and Diabetes sales surged 12.4% from the previous year. Within the Neuroscience segment, neuromodulation sales gained 13%, driven by the successful Percept RC deep brain stimulator.

Despite the positive sales numbers, Medtronic’s adjusted operating margin decreased by 90 basis points to 24.3% in Q2. This decline in margin contributed to an adjusted earnings per share of $1.26, which is just one cent higher than the $1.25 reported in the same quarter last year. Looking ahead, Medtronic anticipates organic sales growth between 4.75% and 5%, with adjusted earnings projected to range from $5.44 to $5.50 for fiscal 2025.

Implications for MDT Stock Performance

MDT stock has seen only a 6% increase this year, falling behind the broader market, where the S&P 500 index has risen by 25%. This trend follows a history of underperformance for MDT stock in recent years, which recorded returns of -10% in 2021, -23% in 2022, and a modest 10% in 2023. In contrast, the Trefis High Quality (HQ) Portfolio, which includes 30 stocks, has consistently outperformed the S&P 500 each year in the same timeframe. The HQ Portfolio has delivered better returns with less volatility, offering a more stable investment experience.

Given the current unpredictable macroeconomic landscape, marked by discussions around rate cuts and possible tariffs, there are concerns that MDT might continue the trend of underperforming against the S&P over the next year. Alternatively, could there be a turnaround? On the valuation front, Medtronic’s stock appears to have limited growth potential. We estimate the company’s fair value at $90 per share, just 5% above its current trading price of $86, based on an expected earnings multiple of 16 times the forecasted earnings of $5.47 for 2025. This multiple aligns with Medtronic’s average P/E ratio over the past three years.

Overall, Medtronic is capitalizing on new product offerings and expects the diabetes segment to boost sales growth in the near future. However, with the stock currently trading at 16 times expected earnings, investors may benefit from waiting for a better buying opportunity before investing for long-term gains.

While MDT stock may seem fairly priced, it is also insightful to consider how Medtronic’s Peers measure up on key metrics. More extensive comparisons for various companies across industries can be found at Peer Comparisons.

[1] Returns as of 11/26/2024
[2] Cumulative total returns since the end of 2016

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.