Medtronic: A Dividend Aristocrat Powering Up for 2025 and Beyond

Key Points

• Medtronic is a strong company that can sustain its capital return growth over time. 
• Results in 2024 are solid, and guidance is rising, leading analysts to raise their stock price targets.
• The stock price is forming a head-and-shoulders reversal pattern that could lead to significant gains over the next 12 to 24 months.  

Medtronic’s NYSE: MDT share price is down significantly from its peak in 2021, providing investors a deep-value opportunity. The stock price is down because of the post-COVID correction and headwinds leading to sluggish growth, which are factors that will not last forever. What will remain is Medtronic’s operational quality and ability to sustain distribution growth. 

Tepid or not, growth is growth, and that is critical for a Dividend Aristocrat such as this. With growth in the forecast, the capital return outlook is as rosy as ever, and so is the technical outlook for the stock price. The stock price bottomed in 2023 and is now amid a reversal that will likely take its stock price back to record levels. 

Value and yield are central to the Medtronic investment thesis this year. Trading near rock-bottom levels, this med-tech company is valued at only 16x earnings, which is at the low end of the historical range and less than half the peak. The low valuation puts the yield in the high end of its range, above 3.2%, with shares near $85, with an expectation for the distribution to grow and the share price to follow. Even without distribution growth, there are also buybacks to consider, which reduced the count by over 3% so far in F2025.

Medtronic Outpaces Forecasts and Raises Guidance

Medtronic may not have inspired the bulls when it reported for Q2 F2025, but the results are no less strong because of it. The company grew revenue by 5% despite the impact of forex headwinds, which shaved 30 basis points off the total. The revenue is also strong relative to the consensus estimate, which expected 150 basis less. Multiple franchises in all segments are cited as providing strength, showing the strength of Medtronic’s diversified portfolio. Medical Surgical was the weakest segment, growing only 1.2%, while Diabetes grew more than 12%, and the cardiac and neuroscience segments grew by 6% and 7%.

The margin news is mixed but favorable to the outlook and investors. Adjusted net income contracted compared to last year due to the impact of FX conversion. Excluding that, adjusted earnings are up 8%, but the critical detail is the cash flow. The company’s GAAP net earnings and cash flow increased by 40% due to improved efficiency, which is expected to stick. 

The company's guidance favors higher Medtronic share prices. It raised its guidance for full-year fiscal 2025 revenue and earnings, putting the new low-end for revenue above the prior high and the low-end for earnings in alignment with the consensus forecast. This should lead analysts to stand by their stock price targets, if not increase them, as is the trend in 2024.

Regardless, analysts' sentiment trend in 2024 is bullish, leading the market into a reversal with coverage increasing and the consensus price target rising. MDT stock picked up five or 40% more analysts in the last 12 months, and its price target has increased by 5%, indicating a 15% upside from critical support targets. A move to the $95 consensus target would put the market at a multi-year high and confirm a major reversal pattern. 

Medtronic Is in a Head & Shoulders Reversal

Medtronic's share price is in a classic head-and-shoulders reversal. The head formed with the lows in fall 2023, and now the second shoulder is completed. All that is left is for the market to move up and set a new high, opening the door for the larger movement. The critical resistance point in 2024 is near $90.50, the pattern's neckline. A move above that level would be bullish and could lead to a quick $18 advance equal to the magnitude of the reversal pattern. The larger movement faces resistance at points including $110 and $120 but can move above them over time.