Medtronic plc (NYSE:MDT) has taken a very different path from the broader market over the past year. The stock has declined by over 7% in the past 12 months, compared with a 17% gain for the broader market.
That underperformance raises a straightforward valuation question for investors: whether Medtronic has become cheap enough to compensate investors for the risks surrounding its business, or whether the market is correctly discounting a company whose growth remains uneven.
But before we dive into the investment story, take a look at our recently published article on Gilead vs. Medtronic: Which Healthcare Stock Offers the Better Mix of Growth and Income? for better comparative insight into the sector.
Medtronic Has Lost Ground While the Market Rallied
At $86.38 per share, Medtronic plc (NYSE:MDT) has a forward P/E of approximately 14.4, according to Seeking Alpha. The company raised both its FY27 organic revenue growth and diluted non-GAAP EPS outlook in September, and now expects organic revenue growth of 7.25% to 7.75%. That multiple does not look demanding if Medtronic can sustain anything close to that growth rate. More importantly, recent performance suggests the company is gaining momentum across several of its newer and established businesses.
That valuation does not appear particularly demanding for a medical-device company capable of delivering high-single-digit organic growth. But the multiple also suggests the market is not expecting Medtronic to become a high-growth company overnight. For the stock to re-rate, investors will likely need evidence that the recent acceleration can translate into sustained revenue and earnings growth. There are ten healthcare stocks other than MDT in our ranking of the best healthcare stocks to buy according to hedge funds. Check out the complete list here to make an informed decision.
Several Businesses Are Finally Providing Momentum
Medtronic’s fiscal 2027 first-quarter revenue increased 13.7% organically to $9.8 billion. Cardiovascular was particularly strong, with organic revenue up 18.9%, while Cardiac Ablation Solutions grew 88%. Electrophysiology Therapies also increased 29.1% organically. Neuroscience grew 9.3%, Medical Surgical reported strong performance with 10.2% growth, and the Diabetes business rose 14.9% organically.
The breadth of that growth shows that Medtronic is not relying on a single product to revive its top line. Its cardiovascular portfolio is benefiting from electrophysiology and ablation technologies, while diabetes and newer platforms are providing additional sources of expansion. The company has also expanded its portfolio through acquisitions of Scientia Vascular and SPR Therapeutics and announced further investments in areas including robotic-assisted surgery and leaflet modification technology.
The Recent Growth Rate Comes With a Caveat
Still, investors should be careful about taking the latest growth rate at face value. Medtronic’s first quarter contained an extra fiscal week, which the company estimated contributed approximately $570 million to organic growth. That makes the quarterly increase look stronger than the underlying recurring growth rate.
There is also a question of whether the company can convert its improving revenue performance into sustained earnings growth. Medtronic reported non-GAAP diluted EPS of $1.45 in the quarter, ahead of guidance, and raised its full-year diluted non-GAAP EPS guidance to the new range of $5.94 to $6.00. For more insight into how Medtronic compares with investment stories for other popular healthcare stocks, take a look at our insightful article on Danaher vs. Medtronic: Which Healthcare Recovery Story Has More Upside?.
Does the Valuation Make Sense?
With a forward P/E of roughly 14.4, Medtronic plc (NYSE:MDT) does not need spectacular growth to justify its valuation. The stock’s decline has already lowered the earnings multiple, while the company’s newer growth platforms are showing encouraging momentum.
The main question is whether that momentum is durable. If cardiovascular, diabetes, and other businesses can sustain solid growth and translate it into earnings, Medtronic’s current valuation could look reasonable. If growth normalizes sharply after the recent boost, however, the stock may deserve its relatively modest multiple.
For now, Medtronic looks less like a deep-value stock and more like a reasonable valuation attached to a company attempting to prove that its growth story has genuinely improved. Read MDT’s detailed valuation story here.
While we acknowledge the risk and potential of MDT as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than MDT and that has 10,000% upside potential, check out our report about this cheapest AI stock.
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This article is originally published at Insider Monkey.
