Medtronic (MDT -0.20%)posted first-quarter earnings (for the period ended on June 30) that exceeded the average of Wall Street estimates. The results were strong enough for the medical technologies giant to raise its full-year profit forecast.
Investors should welcome the improved outlook, which could signal the start of a bigger turnaround for the company. Medtronic stock rallied on the report but is still down more than 30% from its record high set in late 2021.
Here's why I believe now is a good time to add shares of Medtronic to your portfolio.
Product innovation driving growth
The headline numbers from Medtronic highlight a solid start to its fiscal 2025. For the company's first quarter, adjusted earnings per share (EPS) of $1.23 beat consensus expectations by $0.03, representing an 8% year-over-year increase on a constant currency basis. Q1 revenue reached $8 billion, up 5.3% organically from the prior-year quarter.
Product innovation driving growth is a major theme for Medtronic. Over the past year, around 130 devices across the company's health tech portfolio have received approval from relevant regulatory agencies and are now capturing market adoption. That includes the MiniMed 780G automated insulin delivery (AID) system, cleared by the U.S. Food and Drug Administration (FDA) in 2023. This helped the Diabetes segment's organic sales increase by 12.6%.
This recovery is particularly important. Weakness in the Diabetes group from recent years, going back to a global recall of the previous generation MiniMed 600 series device in 2021, had pressured company-wide results and weighed on the stock over the period. Notably, the FDA cleared Simplera, a disposable all-in-one continuous glucose monitor (CGM) that works with the MiniMed 780G.
The larger Cardiovascular business has also been a strong point, with a 6.9% organic growth in Q1, accelerating sequentially from fiscal 2024. Management cited an across-the-board performance in products from cardiac pacing therapies, cardiac surgery, defibrillation solutions, and coronary solutions.
In terms of guidance, Medtronic now expects 2025 revenue growth between 4.5% and 5%, a lift on the low end of the range from 4%. Similarly, the company sees full-year EPS in a range of $5.42 to $5.50, lifting the low end of the estimate. During the earnings conference call, management expressed confidence for trends to continue into the back half of the year and beyond.
Image source: Getty Images.
A positive long-term outlook
What I like about Medtronic is the company's diversification, which covers multiple high-profile healthcare markets globally. Secular tailwinds, including the effect of an aging population and increased spending on the treatment of chronic diseases, support a positive long-term outlook for the company.
The most compelling bullish case for Medtronic stock as an investment opportunity is the sense that the company is back on track after a challenging last couple of years.
The turnaround from the Diabetes segment helps reaffirm the company's leadership position within the AID and smart multiple-daily injections space as a growth driver that may still be in the early stages of its global potential. Success in integrating more high-tech features throughout the entire product line maintains the company's innovative edge while adding to profitability margins.
Medtronic stock could be undervalued
Ultimately, Medtronic stock looks like a bargain, trading at just 16 times its full-year consensus EPS as a forward price-to-earnings (P/E) ratio.
This level represents a discount against a peer group of medical device companies like Abbott Laboratories, Stryker, Boston Scientific, Edwards Lifesciences, and GE Healthcare Technologies, which trade at average P/E ratios closer to 26. Medtronic stock also offers a 3.2% dividend yield, which is above the industry average.
My interpretation is that Medtronic is fundamentally undervalued. The company's ability to continue executing its profitable growth strategy should be a catalyst for the stock to climb higher.
MDT PE Ratio (Forward) data by YCharts.
Plenty of reasons to be bullish on Medtronic
Medtronic's latest update pointing to a resurgence of operating and financial momentum is great news for investors. As long as macroeconomic conditions remain resilient, I believe the stock deserves a buy rating and can work in the context of a diversified portfolio.
