Medtronic MDT has started the year 2025 on a positive note, with the stock climbing nearly 7% so far in January. This surge in market optimism follows the CMS' recent move to initiate a national coverage analysis (NCA) on renal denervation. A favorable final decision could pave the way for Medtronic’s Symplicity Spyral Renal Denervation System to secure Medicare coverage by October 2025.
Added to this, the US Bureau of Labor Statistics (BLS) report for December shows a slowdown in core inflation despite 2.9% growth in CPI on an annual basis. Throughout 2024, Medtronic and its industry peers faced significant challenges due to rising costs and expenses driven by inflationary pressures. Elevated raw material and labor costs, coupled with oil price volatility, had a notable impact on the company's profitability during this period. Naturally, the recent slowdown in core inflation has provided much-needed relief to investors, triggering an industrywide increase in stock prices of companies like Medtronic.
In January so far, in contrast to Medtronic’s strong rally, the benchmark registered a 0.7% decline, the broader industry rose 1.9% and the sector gained a mere 0.5%. The company also strongly outperformed its key rivals like Abbott ABT and Becton, Dickinson and Company or BD BDX over the same time frame.
Month-to-Date Price Comparison of MDT
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MDT's Golden Crossover Support
MDT stock is currently trading above its 50-day and 200-day moving averages. The stock witnessed a golden crossover on Sept. 5, 2024, and since then, the 50-day moving average has been ahead of the 200-day moving average. This can be a piece of good news for MDT investors, signaling “support” for a continued uptrend.
MDT Above the 50 and 200-Day SMA
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Major Factors Driving Medtronic Shares
Medtronic is strategically expanding its global presence to address the unmet demand for advanced medical devices. Within Cardiovascular, Medtronic is gaining market share, banking on product launches in Cardiac Rhythm Management (CRM) and Structural Heart. CRM, one of Medtronic’s largest businesses, continues to build on the company’s category leadership, banking on the strong performances of Defibrillation Solutions and cardiac pacing therapies. Within Structural Heart, the company looks forward to market share gain on strong Transcatheter aortic valve replacement prospects.
Hypertension has brought up multibillion-dollar opportunities for MDT. Within this business, CMS recently finalized the inpatient payment. In November 2024, it finalized the outpatient transitional pass-through payment for the Symplicity Spyral renal denervation (RDN) catheter used in the Symplicity blood pressure procedure under the Medicare Hospital Outpatient Prospective Payment System.
In MedSurg, Medtronic is scaling the production of Hugo RAS. The Surgical and Neuroscience portfolios continue to contribute positively. Further, the company’s Pacing business continued to drive strong growth, banking on strong global growth of its Micra leadless pacemaker. Innovations and market expansion efforts are helping it offset the impact of inflation and supply disruptions.
In terms of dividends, too, even after considering the company’s slowing rate of dividend hike, the current yield of 3.28% outperforms the industry and the sector average. The company’s current payout ratio stands at 53% compared with 36.5% for the industry.
Abbott and BD’s dividend yield TTM are 1.95% and 1.76%, respectively.
MDT Dividend Yield (TTM)
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MDT's Impressive Liquidity and Solvency Position
Medtronic’s strong liquidity position should allow it to meet its near-term debt obligations. Medtronic apparently looks quite burdened by debt, with total debt (including the current portion) of $28.30 billion as of Oct 31, 2024. The company’s cash and cash equivalents were $7.99 billion at the end of the second quarter of fiscal 2025.
Although the quarter’s total debt was much higher than the corresponding cash and cash equivalent level, the short-term payable debt of $3.72 billion remains lower than the short-term cash level. The company’s times interest earned ratio too is at an impressive level of 7.7 indicating that Medtronic is well capable of paying the interest on its business debts on time.
Cheap Valuation Too
MDT stock is currently trading at a discount compared to the Medical Products industry. Its forward 12-month P/E of 14.87X is lower than the industry’s 20.89X at this moment.
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Snags Remain
Fewer 2025 Rate Cuts May Not Suffice: There was an improvement in investors’ sentiment over the past couple of months, with IMF’s October world economic outlook boasting about the global inflation rate declining steadily, from 6.8% in 2023 to 5.8% in 2024 and 4.3% in 2025. While this has, to some extent, led to a boost in the stock prices of several MedTech players, the Fed’s conservative approach toward the 2025 rate cut has again led to an overall decline in market sentiment.
As we await the release of the IMF’s December 2024 World Economic Outlook tomorrow, the previously discussed BLS report highlights a 2.9% rise in inflation for December. This underscores the challenges the Federal Reserve faces in achieving its 2% inflation target, even after implementing three consecutive rate cuts in 2024. The data suggests that the economy may still require more aggressive rate reductions down the line.
Growing Sino-U.S. Trade Complications to Mar Growth: The 2024 National Trade Estimate report depicted severe concern around growing Sino-U.S. trade complications and outlined the overwhelming impact of Chinese volume-based procurement and the Made in China 2025 industrial plan on U.S. medical device businesses. Medtronic, which records approximately 7% of its operational revenues from China (as of fiscal 2024), might face a compromised trade situation in the ongoing fiscal year if the trade tension between these two countries is not resolved soon.
Our Take: Hold MDT Stock for Now
Despite the company’s several recent upsides and dividend pay-out trend outperforming the industry standard, the ongoing hiccups in the form of inflationary challenges, and international trade and supply chain issues are limiting this Zacks Rank #3 (Hold) stock’s near-term gains. While current shareholders should hold their positions, new investors should wait for the stock to retract some of its recent gains, providing a better entry point.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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