Since pushing to an all-time high in September 2021, Medtronic (NYSE: MDT) has been falling in lock step with tech stocks. That pattern continued even after the company posted a double beat in its fiscal year 2023 first quarter. MDT stock feel 4% on the news. Later in the week the stock regained most of that loss, but it dropped in sync with the broader market on Friday, August 26.
However, the volatile price action with MDT stock shows why context matters in investing. The company’s earnings report came at a time when investors were looking for any reason to push stocks lower. And it got that with the hawkish tone set by the Federal Reserve.
That’s not to say it’s all smooth sailing for the medical device company. The company was expected to benefit from a “V-shaped” recovery coming out of the pandemic. Due to supply chain disruptions among other things, that hasn’t emerged.
That’s showing up in the performance of the stock. Even though the company maintained its guidance, at least one analyst, Raymond James, downgraded the stock with the belief that Medtronic will take longer to recover from the supply chain disruptions. And the consensus of analysts surveyed by MarketBeat gives MDT stock a Hold with a price target of $112.10.
With that in mind, I’ll admit that investors should maintain a realistic outlook for MDT stock in the short term, but there are reasons for investors with a long-term outlook to consider Medtronic as a stock to manage through this recession.
Demand Will Remain Strong
Despite the massive amount of healthcare information that health care professionals collect every day, approximately 66% of physicians say they don’t have all the information they need about their patients.
And according to a Google/Harris poll, 96% of U.S. physicians say that easier access to critical information may help save lives. Furthermore, McKinsey reports that between $500 and $750 billion of healthcare spending could be reduced by better use of data.
All of this works in favor of Medtronic. The company delivers data-enabled devices that improves treatment. That data can become evidence-based insights that clinical teams can put to deliver more predictive outcomes.
An Expert in a Sector Where Expertise Matters
The health care sector is complex. This creates a high cost of entry. And that cost isn’t only measured in dollars. Companies need the knowledge base to devise relevant and efficient healthcare technology solutions.
That gives Medtronic a strong advantage. The company’s products and services cover virtually all areas of health care. This means that the company is already delivering the data that the medical community needs.
And the company continues to develop new products. In fact, the company just announced that its investigational EV ICD System met safety endpoints in a global clinical trial. The system is a first-of-its-kind defibrillator in which the lead is placed under the breastbone and outside of the heart and veins.
The Fundamentals Remain Strong
Finally, Medtronic is still a fundamentally solid company. And at times like these, that should provide comfort to investors. One metric that is encouraging is the company’s free cash flow (FCF). After falling in 2021, FCF rebounded in 2022 and is above pre-pandemic levels.
Furthermore, the company expects to use that cash to reward shareholders. As executive vice president and chief financial officer Karen Parkhill said on the company’s latest earnings call, “We continue to target returning a minimum of 50% of our free cash flow to our shareholders, primarily through our strong and growing dividend.” Parkhill also pointed to the company’s recent pattern of share repurchases which totaled $2.5 billion in Medtronic’s prior fiscal year.
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