Citi cuts Medtronic price target to $98, maintains buy rating

On Wednesday, Citi analysts adjusted their outlook on Medtronic , Inc. (NYSE:MDT), a prominent $109 billion healthcare equipment company with a "GOOD" financial health rating according to InvestingPro, decreasing the price target to $98 from the previous $103 while sustaining a Buy rating on the stock. The revision follows Medtronic’s announcement of its fiscal fourth-quarter earnings, which showcased several positive developments. The company reported revenue of $8.93 billion, a 5.4% year-over-year organic increase, surpassing the consensus estimate of $8.81 billion. Operating margins also improved, rising to 27.8% from 26.9% in the previous year, with earnings per share (EPS) climbing 15.8% year-over-year to $1.62, which was ahead of the consensus forecast of $1.58. The company maintains an impressive gross profit margin of 65.59% and has consistently paid dividends for 49 consecutive years.

In addition to the robust quarterly performance, Medtronic revealed plans to spin out its Diabetes franchise, a strategic move aimed at streamlining its operations. Looking ahead to fiscal year 2026, management has provided guidance for organic revenue growth of approximately 5%, which translates to a range between $35.2 billion and $35.3 billion. This projection is slightly above the consensus estimate of $35.04 billion. However, the EPS forecast of $5.50 to $5.60 falls short of the consensus estimate of $5.82. The lower end of the EPS guidance accounts for the potential resumption of U.S.-China tariffs at higher rates after a 90-day pause.

Medtronic is continuing to evolve with the introduction of new products such as PFA (Pulsed Field Ablation) and renal denervation, and the planned spinoff of its Diabetes segment. Citi’s analysts expressed optimism about the company’s quarterly performance and future guidance, which they consider a solid starting point. They also noted the potential for Medtronic to reinvest in its business through stock repurchases and tuck-in mergers and acquisitions. Trading at a P/E ratio of 25.87, InvestingPro analysis suggests the stock is currently slightly undervalued. For deeper insights into Medtronic’s valuation and growth prospects, including 8 additional exclusive ProTips and comprehensive financial analysis, investors can access the detailed Pro Research Report available on InvestingPro.

In other recent news, Medtronic reported sales of over $32 billion for the fiscal year ending in April 2024, with its diabetes division contributing close to $2.5 billion, marking a 10% increase from the previous year. The company plans to spin off its diabetes division into an independent, publicly traded entity within 18 months, aiming to enhance growth rates for both the new company and Medtronic’s remaining divisions. JPMorgan maintained a Neutral rating with a $95 price target, expressing skepticism about the spin-off’s potential for value creation, while Needham kept a Hold rating, anticipating Medtronic’s upcoming earnings to slightly surpass Wall Street estimates. Barclays (LON:BARC) reiterated an Overweight rating with a $109 target, highlighting positive developments in Medtronic’s EXPAND URO trial and the submission of its Hugo robotic-assisted surgery system for FDA approval. Analysts from Barclays view the Hugo program’s progress as a potential catalyst for the company. As Medtronic prepares to release its fourth-quarter fiscal year 2025 earnings, analysts are closely watching for guidance that could influence future performance. Investors are particularly attentive to these developments, which could significantly impact Medtronic’s strategic direction and financial health.

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