Shares of Medtronic(NYSE: MDT) are off to a fantastic start in 2025, already rising by 13% year to date. The medical devices giant had some weakness in recent years amid disappointing trends from its diabetes segment, but it appears to have finally turned the corner with its increasingly diversified operating profile.
Medtronic is capturing demand for its cutting-edge solutions, as recent product launches emerge to drive new growth. With the stock still trading at 26% below its 2021 peak, there's a sense that the current rally is just beginning. Here are three reasons Medtronic stock may make a great addition to your portfolio right now.
1. Leadership in AI-powered medtech
Medtronic is renowned for revolutionizing healthcare through groundbreaking innovations, from pioneering the first implantable cardiac pacemakers to developing state-of-the-art minimally invasive surgical tools. Through its four core operating segments -- cardiovascular, neuroscience, medical-surgical, and diabetes care -- the company continues to cement its position as a global leader in medical technologies.
What's particularly exciting in 2025 is Medtronic's embrace of artificial intelligence (AI) capabilities across its portfolio. The company is integrating machine learning and automation into several different applications. The GI Genius intelligent endoscopy module stands out as a prime example, revolutionizing colonoscopy procedures with AI-powered polyp detection.
In the surgical space, the Aible robotic surgery ecosystem leverages predictive models to develop customized patient treatment plans for complex spine and cranial procedures. And in the highly competitive diabetes care segment, the new MiniMed 780G insulin pump system employs AI algorithms to predict and automatically adjust insulin delivery based on real-time blood sugar monitoring.
Image source: Getty Images.
Ultimately, these AI-enhanced features are intended to improve patient care and deliver superior medical outcomes while helping to consolidate Medtronic's market share in its key segments. Their impact was evident in the company's results for its fiscal 2025's second quarter (which ended Oct. 25). Revenue climbed 5.3% year over year, propelling an 8% increase in adjusted earnings per share (EPS).
Beyond those otherwise modest headline numbers, perhaps the bigger story is the operating outlook. Over the past year, Medtronic has secured more than 120 regulatory approvals globally for new products, many of which are just starting to gain commercial adoption. The pipeline suggests a runway for even stronger trends.
2. Improving earnings momentum
There's a lot to like about Medtronic, which is well-positioned to capitalize on several secular tailwinds within the healthcare sector. Themes, such as an aging global population and increased spending on treating chronic diseases, support a positive long-term outlook for the company.
Management is guiding for full-year organic revenue growth between 4.75% and 5% in fiscal 2025, with strength across its key segments. The company's EPS target range of $5.44 to $5.50 represents a 10.5% increase at the midpoint from the fiscal 2024 result. What's particularly encouraging is that the company has hiked these estimates in each of the last two quarters, with comments from management projecting confidence for the momentum to continue.
Another better-than-expected quarterly report, when the company releases its third-quarter results in late February, could serve as a catalyst for shares to rally higher.
3. Medtronic's compelling valuation
Perhaps the best reason Medtronic makes for a compelling investment is that the stock looks like a bargain, trading at a forward price-to-earnings (P/E) ratio of just 16. This level is deeply discounted compared to its medtech peer group -- including companies like Abbott Laboratories, Stryker, Boston Scientific, Edwards Lifesciences, and GE HealthCare Technologies -- which have an average forward P/E closer to 27:
Given Medtronic's trend toward more profitable growth, I believe the stock is undervalued; there's room for the valuation gap with its peers to narrow as results over the next few quarters reaffirm its improved long-term outlook. The stock also now offers a 3.1% dividend yield, making it an attractive high-quality income idea.
Final thoughts
With its AI-powered innovations gaining traction, improving financial performance, and attractive valuation metrics, Medtronic is a smart idea for long-term investors who have diversified portfolios. I'm bullish, and predict shares of Medtronic will outperform in 2025.
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Dan Victor has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Abbott Laboratories, Edwards Lifesciences, and GE HealthCare Technologies. The Motley Fool recommends Medtronic and recommends the following options: long January 2026 $75 calls on Medtronic and short January 2026 $85 calls on Medtronic. The Motley Fool has a disclosure policy.
