Medtronic MDT came up with a mixed performance for the third quarter of fiscal 2025, sparking investor concerns and a consequent stock drop. The stock declined more than 7% after the company’s fiscal third-quarter revenues of $8.29 billion fell slightly short of the Zacks Consensus Estimate of $8.33 billion. This shortfall was primarily due to a 1.9% decline in medical-surgical unit sales, impacted by shifts in U.S. distributor purchasing patterns.

However, the Diabetes segment was a bright spot, growing 8.4%, fueled by strong demand for insulin delivery systems. Neuromodulation delivered an above-market performance, driven by Pain Stim growth, including strong U.S. growth propelled by the continued launch of the Inceptiv spinal cord stimulator. The company’s long-term investments in cutting-edge innovation, such as pulsed-field ablation, are beginning to yield results, driving growth in some of the most attractive MedTech markets. Additionally, the expansion of both margins in the quarter is highly encouraging.

The stock has started to regain its momentum. Year to date, the stock has gained 12.5% compared with the broader industry’s 10.5% rise and the sector’s 5.9% increase. The benchmark registered a 2.1% increase. However, its key rivals like Abbott ABT and Boston Scientific BSX outperformed MDT over the same time frame with their respective gains of 19.9% and 16.9%.

YTD Price Comparison

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Mixed Estimate Revision Trend for Fiscal 2025

Analysts, meanwhile, remain cautiously optimistic, with price targets moving in both directions over the past seven days, signaling potential for future recovery but also highlighting near-term risks.

Earnings estimates for Medtronic have improved by a penny to earnings of $5.46 per share for fiscal 2025 over the past seven days following 11 upward and 4 downward estimate revisions.

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MDT's Major Q3 Takeaways and Optimistic Q4 Outlook

Medtronic delivered another quarter of mid-single-digit revenue growth, marking the ninth consecutive period of this momentum. The company's overall strong third-quarter performance was driven by key growth areas, including a 22% surge in Cardiac Ablation Solutions (CAS), double-digit growth in leadless pacing, neuromodulation and diabetes as well as high-single-digit expansion in structural heart (excluding congenital) and U.S. cranial and spinal technologies.

Within cardiovascular, Medtronic's Pulse Field Ablation (PFA) products Affera and PulseSelect fueled robust demand. Medtronic is also advancing its renal denervation platform, with Medicare coverage expected in the next eight months. Neuroscience saw strong performance, with cranial and spinal technologies up 5% and neuromodulation surging 13%, led by Inceptiv and Percept DBS.

Looking ahead, Medtronic expects revenue and EPS growth to accelerate in the fourth quarter, driven by its diversified innovation pipeline, market expansion and operational leverage, creating sustained value for shareholders.

Cheap Valuation Too

MDT stock is currently trading at a discount compared to the Medical Products industry. Its forward 12-month P/E of 15.60X is lower than the industry’s 22.58X at this moment.

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The stock also remains attractively valued compared to its peers like BSXwith a forward 12-month P/E of 35.96X and ABT with a forward 12-month P/E of 25.78.

Three Challenges

U.S. Distributor Disruptions in Medical Surgical: Medtronic’s Medical Surgical segment faced challenges in the third quarter due to shifts in U.S. distributor buying patterns, which had a significant impact on its surgical performance. This temporary disruption affected revenues by around 200 basis points. However, Medtronic expects this issue to be resolved as it moves into fiscal 2026.

Stapling Franchise Pressure: Competitive and market challenges in the stapling business weighed on the Medical Surgical segment. However, the company offset some of this impact with growth in LigaSure Advanced Energy Products and emerging markets.

Spine Market Disruptions: While Medtronic’s cranial and spinal technologies grew 5%, the broader spine market continued to face disruptions, including a major competitor exiting the business. Medtronic’s AI-driven preoperative planning, robotics and navigation technologies are helping it capture market share.

Low ROE for MDT Stock

MDT’s trailing 12-month return on equity (ROE) of 14.07% underperforms the average earned by companies in the Medical Products industry (16.71%). This underscores the fact that the company is less effective in utilizing its equity capital compared to its peers. This also implies that Medtronic may be facing higher operational costs, lower margins or slower revenue growth than its competitors, leading to lower returns for shareholders.

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Our Take: Hold MDT Stock for Now

Despite the company’s several recent upsides, the ongoing hiccups in  Medical Surgical, and other macroeconomic issues are limiting this Zacks Rank #3 (Hold) stock’s near-term gains. Amid the challenging scenario, the company’s ROE has been lower than the industry average, indicating that the company is less efficient at converting equity capital into net income compared to its peers, suggesting room for improvement in operational execution. While current shareholders should hold their positions, new investors should wait for the stock to retract some of its recent gains, thus providing a better entry point.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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