Medtronic stock downgraded to hold, price target cut to $85

Tuesday, Stifel has downgraded Medtronic , Inc. (NYSE:MDT) from Buy to Hold and decreased its price target from $100.00 to $85.00. The firm cited several concerns affecting the medical device company's growth prospects and valuation.

The Stifel analyst acknowledged the positive changes implemented by CEO Geoff Martha since 2020 but expressed difficulty in identifying the next fundamental catalyst that could drive significant growth acceleration and long-term share appreciation for Medtronic.

The analyst pointed out specific issues that led to the downgrade, including innovation pipeline growth opportunities that are emerging slower than anticipated and competitive challenges that limit growth across many divisions.

Additionally, the timing for post-Covid margin recovery and re-expansion remains uncertain. These factors contribute to an outlook that does not suggest a change in Medtronic's mid-single-digit organic top-line growth and high-single-digit EPS growth.

Given the current company outlook and the challenges outlined, Stifel sees Medtronic's stock as trading in line with its peers, who also show mid-single-digit revenue growth and high-single-digit EPS growth. Consequently, the firm believes the stock is reasonably valued at this time, leading to the decision to downgrade the rating and adjust the price target accordingly.

In other recent news, Medtronic has received FDA approval for its Simplera™ continuous glucose monitor (CGM), a smaller and user-friendly device. The company has also announced a global partnership with Abbott to expand CGM options for individuals with diabetes. This partnership is expected to contribute to Medtronic's Diabetes revenue.

Goldman Sachs initiated coverage on Medtronic with a sell rating, citing concerns about the need for increased investment to sustain growth. However, Medtronic has reaffirmed its financial outlook for the first quarter and full fiscal year of 2025.

Additionally, Truist Securities revised its price target for Medtronic, lowering it to $85 from $88, based on the company's mid-single-digit earnings per share (EPS) growth prospects. Similarly, Baird lowered its price target for Medtronic to $82 from $87, focusing on the company's full-year 2025 guidance and the sustainability of its high single-digit adjusted EPS growth rates. Despite the lowered targets, both firms maintain a neutral stance on Medtronic.

In leadership changes, Medtronic's CFO Karen Parkhill is set to join HP Inc (NYSE:HPQ). During the interim, Gary Corona will assume the CFO role while the company searches for a permanent replacement. Despite this transition, Medtronic has reiterated its financial outlook for the first quarter and full fiscal year of 2025. These are the latest developments in the company's ongoing efforts to advance its product pipeline and manage its financial health.

InvestingPro Insights

In light of Stifel's recent downgrade of Medtronic, Inc. (NYSE:MDT), it's worth considering additional insights from InvestingPro. Notably, Medtronic has demonstrated a commitment to shareholder returns, as evidenced by its history of raising its dividend for 10 consecutive years, and maintaining dividend payments for 48 consecutive years, which is indicative of the company's stable financial health and management's confidence in its cash flow. Furthermore, the company's management has been actively engaged in share buybacks, showcasing a proactive approach to capital distribution.

From a financial perspective, Medtronic's market capitalization stands at $105.46 billion, with a Price/Earnings (P/E) ratio of 29.68. When adjusted for the last twelve months as of Q4 2024, the P/E ratio is more favorable at 22.1. The company's revenue growth for the same period was 3.64%, signaling steady business performance. Additionally, Medtronic's gross profit margin remains robust at 65.73%, underscoring its efficiency in maintaining profitability amidst operational costs.

For those interested in delving deeper into Medtronic's financial health and stock performance, InvestingPro offers additional tips and metrics. Readers can find more detailed analyses, including the latest analyst predictions and profitability assessments, by visiting InvestingPro.

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