Medtronic (MDT), one of the world’s largest medical device makers, was once considered a stable blue chip stock. But over the past five years, it has declined by more than 30% due to supply chain constraints, higher costs, quality control issues, and competitive pressure. However, Medtronic’s stock is worth buying again for four simple reasons.
1. It’s growing again
In fiscal 2026 (which ended this April), Medtronic’s revenue grew 8.4% (and 5.8% organically) to $36.4 billion, marking its strongest top-line growth in ten years.
That acceleration was driven by 9.3% organic growth in its cardiovascular business, which accounted for more than 38% of its enterprise revenue. All of its other segments (neuroscience, medical surgical, and diabetes) also grew organically.
Medtronic expects its organic revenue to rise 7.25%-7.75% in fiscal 2027, representing another multi-year high and easily exceeding its historical average of around 5%. Once again, that growth will be led by its rising sales of cardiovascular devices. From fiscal 2026 to fiscal 2029, analysts expect its reported revenue to grow at a 5% CAGR.
2. Its cash flow is growing
Medtronic has been restructuring its business to free up more cash to fund its dividends while expanding its higher-growth cardiovascular and neuroscience portfolios. Over the past year, it spun off its diabetes unit as MiniMed (MMED), overhauled its cardiovascular business, pruned its workforce, and announced the closure of its Santa Rosa campus.
As a result, its free cash flow (FCF) grew 4.6% to $5.43 billion in fiscal 2026. It spent only $3.64 billion of that total on dividends, leaving ample room for future hikes.
4. It’s still undervalued
From fiscal 2026 to fiscal 2029, analysts expect Medtronic’s EPS to grow at a 14% CAGR. But at $92, its stock trades at just 18 times next year’s earnings. That makes it much cheaper than many of its industry peers and the S&P 500 — which trades at 21 times forward earnings.
Medtronic isn’t an exciting stock, but it’s overcome most of its prior challenges and should grow again as it expands its cardiovascular and neuroscience businesses. Only a handful of companies can match Medtronic’s scale and diversification, so it’s still a reliable long-term play for investors who want an income-generating stock with a wide moat.
— Leo Sun
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Source: The Motley Fool
