Medtronic plc (NYSE:MDT) has been a bit of a slow burner. The company has a huge medical-device business and a dependable dividend, but growth has been difficult to find over the past few years. For investors, that has made Medtronic more of an income and stability play than a stock with much excitement around it.
The latest results are starting to change that picture. Medtronic is seeing better growth in several parts of the business, earnings are picking up, and management raised its guidance for fiscal 2027. The company is still a long way from being a high-growth healthcare stock. However, with shares trading at about 15× forward earnings and offering a dividend yield of more than 3%, the valuation is getting harder to ignore. Moreover, the company is closing in on a milestone that only a small group of dividend stocks has achieved.
The business is starting to pick up
Medtronic plc (NYSE:MDT)’s size is one of its biggest advantages. It sells medical devices across cardiovascular care, neuroscience, medical surgery, and diabetes. That mix gives the company some cushion when one area has a bad quarter. The latest results showed that cushion in action. Cardiovascular delivered strong growth, while Neuroscience, Medical Surgical and Diabetes also posted high-single-digit or double-digit organic growth.
For Medtronic, that is encouraging because the company has spent years trying to get its different businesses moving in the same direction. The problem was never that Medtronic lacked products. It was that the business was growing too slowly. Now, there are signs that some of those products are starting to pull their weight.
The latest numbers have a catch. Medtronic had an extra selling week during the quarter, adding about $570 million to revenue. That helped push reported revenue growth to 13.7%, so investors should not expect the company to repeat that growth rate every quarter. Still, the underlying performance looks healthier than it has in a while.
The earnings picture is better, too
Medtronic plc (NYSE:MDT) brought in $9.76 billion in revenue in the first quarter of fiscal 2027, up 13.7% from a year earlier. Adjusted diluted EPS increased 15.1% to $1.45, while GAAP EPS rose 40.7% to $1.14. The more interesting part came from management’s updated forecast. Medtronic now expects organic revenue growth of 7.25%-7.75% for fiscal 2027, compared with 6.75%-7.25% previously. Adjusted EPS guidance was raised to $5.94-$6.00. That gives investors something the company has been missing for a while: a clearer earnings-growth story. It is still early, and guidance can change. But management is now expecting both revenue and earnings to come in higher than it previously thought.
What does the stock’s valuation tell us?
Looking at Medtronic’s trailing P/E alone makes the stock look less interesting. It trades at roughly 22× trailing earnings. Using the midpoint of management’s $5.94-$6.00 adjusted EPS forecast, the stock trades at roughly 15× forward earnings at a share price of around $89-$90. That difference is important. The market is effectively valuing Medtronic at about $22 for every dollar of earnings it generated over the past year. Based on current expectations, that falls to around $15 for every dollar it is expected to earn this year.
That is why the forward P/E matters more here. Medtronic is in a period where earnings are improving, so the trailing multiple makes the stock look more expensive than it does when you look at where earnings are headed. Still, 15× is not a bargain without qualification. Medtronic is a mature company. Its growth needs to justify any higher valuation, and investors have plenty of other places to put their money when interest rates are high. A defensive healthcare stock cannot keep expanding its P/E simply because it has a strong brand and a large market.
The current multiple is more interesting because investors are not being asked to pay a huge premium for the expected improvement.
The dividend is doing some of the heavy lifting
Then there is the dividend. Medtronic pays $0.72 per share every quarter, giving shareholders $2.88 a year. At recent prices, that translates into a yield of roughly 3.2%-3.3%.That matters because shareholders are getting paid while they wait.
Medtronic does not need to suddenly start growing at 15% or 20% a year for the stock to work. If earnings grow at a reasonable pace, the dividend continues to provide income and the valuation holds up, investors can still earn a decent return without a dramatic move in the share price. For a company this mature, that is probably the more realistic way to look at the investment.
Medtronic needs new products to keep this going
The company is not sitting still, either. Medtronic has been expanding its Affera cardiac mapping and ablation system and investing in businesses such as Pi-Cardia and Cornerstone Robotics. It has also acquired Scientia Vascular and SPR Therapeutics. The planned separation of its Diabetes business could also leave the remaining company with a more focused portfolio.
These investments will not suddenly transform Medtronic’s numbers. It will take time for new products and acquisitions to become meaningful contributors to revenue and earnings. But that is where the longer-term story gets interesting. The recent improvement can only take Medtronic so far. Eventually, the company needs new products to keep the growth going. Otherwise, the stock could settle back into the same slow-growth pattern investors have seen for years. In addition to Medtronic, another healthcare giant may have an even more interesting pipeline. Find out why here.
The bottom line
There is no reason to suddenly treat Medtronic plc (NYSE:MDT) like a growth stock. The extra selling week also gave the latest quarter a boost, so the headline 13.7% revenue growth needs to be viewed with some caution. However, the company is clearly in a better position than it was a few years ago.
Several businesses are growing, earnings are moving higher, and management has raised its fiscal 2027 outlook. Adjusted EPS is now expected to come in close to $6.At roughly 15× forward earnings, investors are not paying a price that requires Medtronic to deliver exceptional growth. The dividend yield of more than 3% also gives shareholders some return while the company works through its transition.
The next few quarters will tell us whether this is the beginning of a sustained improvement or simply a good stretch for a company that has struggled to grow. For now, the numbers are moving in the right direction, and the valuation gives investors some room for that improvement to continue.
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This article is originally published at Insider Monkey.
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