Weight-loss drugs like Novo Nordisk’s Ozempic and Wegovy, along with Eli Lilly’s Mounjaro and Zepbound, have been in the spotlight for their impact on the food industry. However, these GLP-1 drugs are beginning to raise concerns within the healthcare sector as well, with Medtronic, a major player in the medical equipment market, feeling the pressure.
Medtronic’s stock, which recently closed at $81.74, has been struggling to gain traction this year, despite the broader Health Care Select Sector SPDR exchange-traded fund posting a gain of over 10%. Investors are worried that these weight-loss medications could reduce demand for Medtronic’s products, particularly in the diabetes and cardiovascular segments, where the company provides insulin pumps and stents. Moreover, these drugs could cut into the market for Medtronic’s bariatric surgical equipment as patients turn to pharmaceutical alternatives to address obesity.
However, Medtronic’s leadership is standing firm. CEO Geoff Martha reassured investors at a Goldman Sachs conference in June, claiming that GLP-1 drugs have had “zero impact” on their insulin delivery business. While Martha acknowledged some softness in the bariatric surgery space during a February earnings call, he characterized the impact as modest and likely temporary. He suggested that, over time, more patients will seek bariatric surgery as a more permanent solution compared to relying solely on medication.
Still, the stock’s underperformance has made investors skittish. Medtronic is now trading at just 15 times earnings for the current fiscal year, significantly below its five-year average of 19.5. The stock’s valuation also trails other large-cap peers like GE HealthCare Technologies, Boston Scientific, Stryker, and Becton Dickinson, amplifying concerns about Medtronic’s growth prospects.
Yet not everyone is bearish. CL King analyst Kristen Stewart remains optimistic about the company’s future. Following Medtronic’s earnings release in May, she highlighted several growth drivers that could improve investor sentiment. Stewart pointed to Medtronic’s new FDA-approved PulseSelect Pulsed Field Ablation System for treating atrial fibrillation and the anticipated launch of the Hugo surgical robot as key products that could drive future growth. She set a target price of $102 per share, representing a potential upside of more than 25%.
Looking ahead, Medtronic will report fiscal-first-quarter results on August 20. Analysts expect earnings to be flat compared to last year, but the consensus is for revenue and earnings growth to accelerate as the year progresses. Wall Street forecasts top-line growth of 3% for fiscal 2025 and an earnings-per-share increase of about 5%. In fiscal 2026, analysts project sales to rise by another 5%, with earnings increasing by 7%. This kind of stable, steady growth at a relatively low valuation makes Medtronic an attractive proposition for long-term investors seeking value. Additionally, Medtronic’s dividend growth track record remains robust, with the company recently increasing its payout for the 47th consecutive year. The stock now offers a solid yield of 3.4%.
Demographic trends also support Medtronic’s long-term outlook. The world’s aging population is likely to sustain demand for cardiovascular and diabetes-related medical interventions. While GLP-1 drugs may provide a short-term headwind, they are unlikely to eliminate the need for advanced medical devices, particularly for older patients who often require more complex treatment options. Furthermore, Medtronic is exploring ways to leverage artificial intelligence to develop innovative therapies and equipment. For instance, the company’s “smart” insulin pen, which uses AI to help patients monitor glucose levels, could pave the way for more AI-driven advancements in the future.
While investor concerns about GLP-1 drugs potentially cannibalizing demand for surgical devices are understandable, these fears seem exaggerated. With Medtronic’s stock now trading at a discount, and with several growth catalysts on the horizon, the current valuation appears to reflect more pessimism than the situation warrants.
Key Takeaways:
- Medtronic’s stock has been underperforming due to concerns that GLP-1 weight-loss drugs could reduce demand for its diabetes and cardiovascular devices, as well as bariatric surgical equipment.
- CEO Geoff Martha has downplayed the impact of these drugs, arguing that the effects are temporary and the demand for more permanent surgical solutions will eventually rebound.
- The stock’s valuation is currently below its historical average and is discounted relative to other large-cap medical equipment companies, offering a potential entry point for value-seeking investors.
- Analysts are optimistic about new products like the PulseSelect Pulsed Field Ablation System and the Hugo surgical robot, which could drive future revenue growth.
- Medtronic’s dividend yield of 3.4% and its strong track record of dividend growth provide additional appeal for long-term investors.
Conclusion:
While Medtronic is facing some headwinds from the rise of GLP-1 weight-loss drugs, the broader outlook for the company remains promising. With new products in the pipeline, favorable demographic trends, and a solid dividend, Medtronic’s current stock price may offer a compelling opportunity for investors willing to look beyond the short-term noise. Although concerns remain, the fears about the company’s future profitability seem to be overblown, presenting a possible value play for savvy investors.
