RBC Capital Markets Upgrades Medtronic to ‘Outperform’ Based on Growth Confidence

RBC Capital Markets has upgraded Medtronic PLC to an “outperform” rating, reflecting increased confidence in the company’s fundamentals and future growth potential.

This decision follows a comprehensive analysis of Medtronic’s recent performance, which included a detailed meeting with CEO Geoff Martha.

Analysts now recognize a clearer path for Medtronic, particularly in areas such as revenue growth, margin expansion, and new product development.

Previously rated “sector perform,” Medtronic’s stock price is now projected to reach $105, representing a 19% increase from its current value of $88.35.

RBC notes that Medtronic is trading at a significant discount compared to the S&P 500, with a price-to-earnings ratio of 6x, which is well below its historical average of 1x. This undervaluation appears unjustified given the company’s improving financial performance and anticipated earnings growth.

Several factors contributed to RBC’s decision to upgrade Medtronic. Key business segments, including cardiac rhythm management, spine, and surgical divisions, are expected to show mid-single-digit growth driven by rising healthcare utilization.

Additionally, growth areas such as diabetes, electrophysiology, and surgical robotics are well-positioned for positive developments, with numerous new products and innovations forthcoming.

Medtronic is also focusing on profitability, aiming to enhance its margins significantly. RBC indicates that the company has the potential to boost its operating margins by up to 500 basis points in the coming years, returning to levels seen before the pandemic.

With a strong free cash flow conversion rate of over 80%, Medtronic is well-positioned to provide consistent returns to shareholders through dividends and share buybacks.

The analysts at RBC also highlight the often-overlooked potential of Medtronic’s products in cardiac ablation, renal denervation, and diabetes management. Notably, the PulseSelect device in cardiac ablation is exceeding expectations, and the Sphere-9 catheter, anticipated to receive FDA approval soon, has received positive feedback.

Furthermore, the Symplicity Spyral Renal Denervation System for hypertension treatment represents a multibillion-dollar opportunity, with favorable reimbursement developments on the horizon.

Given the promising growth prospects, margin expansion, and current undervaluation, RBC analysts now regard Medtronic as a compelling investment opportunity.