We came across a bullish thesis on Medtronic plc (MDT) on Substack by Magnus Ofstad. In this article, we will summarize the bulls’ thesis on MDT. Medtronic plc (MDT)’s share was trading at $84.22 as of April 14th. MDT’s trailing and forward P/E were 25.68 and 14.39 respectively according to Yahoo Finance.
A skilled surgeon surrounded by a team of medical professionals performing a Transcatheter Heart Valve Replacement.
Medtronic (MDT), one of the largest global medical device companies with a market cap of $106.32 billion and a 3.3% dividend yield, is undergoing a period of transformation amidst operational headwinds and strategic reassessments. Known for its diverse portfolio spanning cardiovascular, diabetes, neurology, and surgical technologies, MDT has underperformed peers like Stryker (SYK) and Boston Scientific (BSX) due to its slower pace of innovation and less impactful acquisitions. Particularly, the company’s diabetes pump business has faced regulatory scrutiny in the U.S., contributing to its lag in growth. Despite these challenges, the February 2025 announcement that activist investor Starboard Value had taken a significant stake has rekindled investor interest. Starboard’s track record of driving efficiency and improving profitability positions it as a potential catalyst for strategic and operational improvements at MDT.
One major area of focus is divestitures. MDT had been expected to sell its $2.2 billion Patient Monitoring and Respiratory Interventions (PMRI) segment, a move that could have sharpened its focus on higher-margin areas. However, the company reversed this decision due to stronger-than-expected performance in the segment and instead restructured it under a new unit called Acute Care and Monitoring (ACM), discontinuing only its ventilator line. While this pivot suggests internal confidence in the segment, many investors hope Starboard will push MDT toward more aggressive pruning of non-core assets to streamline operations and enhance profitability. However, divestments alone won’t suffice. To sustain growth, MDT must reinvigorate its R&D engine and deliver commercially successful new products. It has placed considerable emphasis on platforms like the HUGO Robotic Surgery System and next-generation heart surgery devices, signaling a renewed focus on technological leadership.
While MDT is forecasted to grow topline revenue at around 4% annually and trails competitors in EBIT margins, its relatively conservative valuation—reflected in a forward price-to-sales ratio of 3.03 and a revenue CAGR of 4.6%—still leaves much to be desired in terms of near-term upside. It would take an estimated 27 years of growth at current rates for MDT to grow into its valuation multiple, underscoring the importance of strategic shifts. Although the medical device sector is often seen as recession-resistant, valuations may still compress in downturns. Yet, MDT stands out as a potential value play in a defensive sector, especially for dividend-oriented investors. Starboard’s involvement could accelerate much-needed reforms, unlocking meaningful shareholder value if the company successfully refocuses on its core strengths and executes on innovation and efficiency.
