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On Wednesday, JPMorgan reiterated a Neutral rating on Medtronic , Inc. (NYSE:MDT) with a price target of $95.00. According to InvestingPro data, the medical device giant, currently valued at $110.77 billion, trades at a P/E ratio of 26.19, suggesting relatively high valuation compared to its growth prospects. The announcement comes after Medtronic reported plans to spin off its diabetes business within the next 18 months. The proposed strategy involves an initial public offering (IPO) of less than 20% of the diabetes segment, followed by a split-off of the remaining 80% or more, both intended to be tax-free transactions.
The decision to separate the diabetes unit, which has been delivering high-single-digit organic growth, has raised questions among analysts. Medtronic’s diabetes business is considered a growth segment in one of the most promising end markets within the medical technology (MedTech) sector. The division currently boasts operating margins in the mid-teens. InvestingPro analysis shows the company maintains strong overall margins, with a gross profit margin of 65.59%, while demonstrating stable financial health with a GOOD rating.
According to JPMorgan, the separation of the diabetes business could potentially expand Medtronic’s margins post-spin. However, the firm expresses skepticism regarding the value creation of this move. The analyst highlights two core principles in MedTech: innovation and organic sales growth are key drivers of valuation and multiples, and trading growth for multiples typically does not result in increased value.
Given these industry norms, JPMorgan’s analysis suggests that either Medtronic does not anticipate the diabetes business to sustain its current growth rates, or the spin-off is not viewed as a tactically advantageous option for the company. Neither scenario is perceived positively by the firm, leading to their continued Neutral stance on Medtronic stock. For investors seeking deeper insights, InvestingPro offers comprehensive analysis of Medtronic’s financials, including 8 additional ProTips and detailed valuation metrics in its Pro Research Report.
In other recent news, Medtronic has announced plans to spin off its diabetes division into a separate, publicly traded company. This decision follows a notable 10% growth in the division, which generated approximately $2.5 billion in sales for the fiscal year ending in April 2024. Overall, Medtronic reported more than $32 billion in sales for the same period. The separation is expected to be completed within 18 months, allowing the diabetes business to expand more rapidly. Additionally, Medtronic has submitted two 510(k) applications to the FDA for a new interoperable insulin pump in collaboration with Abbott.
Ahead of its fourth-quarter fiscal year 2025 earnings report, Needham analysts have maintained a Hold rating on Medtronic’s stock, anticipating the company will slightly exceed Wall Street’s consensus estimates for revenue and earnings per share. Meanwhile, JPMorgan has kept a Neutral rating with a price target of $95, expressing concerns about potential pressures on earnings due to tariff headwinds and exposure to the Chinese market. Barclays (LON:BARC) has reaffirmed an Overweight rating with a $109 price target, citing positive results from Medtronic’s EXPAND URO trial and the submission of the Hugo robotic-assisted surgery system for FDA approval. Investors are closely watching these developments as Medtronic continues to innovate and expand its product offerings.
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