MEDTRONIC PLC; A DIVIDEND KING OF THE HEALTHCARE REALM

By Tejas Shankar, Equity Analyst

In January 2015, Medtronic completed the largest acquisition in medical device history at the time by paying $49.9 Billion for Covidien plc, an Irish manufacturer of surgical instruments, ventilators, and medical supplies. This deal catapulted the Ireland-based Fortune 500 company into being the world’s largest standalone medical device company by revenue. Medtronic is segmented into 4 major components: Cardiovascular, Neuroscience, Medical Surgical, & Diabetes, which have all seen varying amounts of growth over the years. Since the merger in 2015, the stock has had its highs and lows, but overall has been pretty horizontal, with only a growth of roughly 15%, falling behind inflation. Despite this, there are some opportunities that the company has been presented with that, if dealt correctly, could lead to a steep jump in its stock price.

When looking at Medtronic’s Latest Q3 earnings, filed February 24th, 2026, for the quarter ended January 23, 2026, there are a few positives that must be highlighted. Firstly, the company saw its largest revenue growth in 10 quarters of 8.7%, reaching $9.0 Billion. This wasn’t the performance of one sector, but rather all 4 sectors performed and contributed to the growth, with Cardiovascular leading the charge. Neuroscience followed closely behind double-digit growth, primarily driven by its pain stimulation. And even their Medical Surgical Segment, the division which was the aftermath of the Covidien acquisition, posted modest growth. 

There are also some concerns that are hidden in the Quarterly Earnings(10-Q) that are noteworthy. One of them is the rising long-term debt. The company had refinanced a plethora of its short-term debt obligations, and it pushed its long-term debt to $27.9 billion with a debt-to-equity ratio of 0.57. Another issue is seen with the company’s tangible book value(Total Assets- Intangible Assets- Total Liabilities), which is roughly negative $3 Billion. On the bright side, most of this is dragged down by their $41.9 billion goodwill from the Covidien acquisition, but it is still an unsettling metric to look at, as it shows the high leverage that Medtronic has. As Charlie Munger, Warren Buffett’s long-time partner at Berkshire Hathaway, famously said, “there are only three ways a smart person can go broke: liquor, ladies, and leverage,” an issue perfectly exemplified with Medtronic’s 10-Q. Finally, their Earnings per Share(EPS) fell from $1.01 to $0.89 Year over Year(YoY) this quarter. However, this drop can largely be explained by rising, one-time and non-cash charges like their $441 million in intangible amortization, $77 million in restructuring costs tied to their diabetes company’s IPO, and $62 million in litigation charges. This also contributed to their bottom line dropping, showing how the Profit and Loss(P&L Statement ) doesn’t always paint the full picture. 

To understand where these numbers above come from, you have to go back to 2015 and the Covidien Merger and Acquisition (M&A). The logic to acquire Covidien made sense for Medtronic at the time. It allowed the company to expand its operations from its implantable devices, such as pacemakers, spinal systems, and deep brain stimulators, to also encompass Covidien’s broad portfolio of hospital consumables. This deal was not only strategic in allowing Medtronic to expand its business, but it also allowed it to do a tax inversion, as it was with another Irish-based company. Despite the benefits of the M&A, there were a couple of drawbacks that are seriously limiting investor confidence, one of them being the overwhelmingly large goodwill of $41.9 billion. A goodwill of $41.9 billion is an intangible asset that essentially serves as a historical receipt for how much Medtronic paid on top of tangible assets for all its acquisitions, primarily Covidien. In addition, the medical supply business that Covidien brought with it has seen microscopic gains of just under 1% over the last 4 fiscal years, consistently underperforming relative to the deal’s premium.

Regal Dividends 

There is one thing that you can be certain about with Medtronic: they will raise their dividends from their current yield of 3.3% as they have been doing for 48 consecutive years, on track to be a dividend king in 2027. Medtronic is on pace to join a good club that has only 60 U.S. companies that have ever achieved the distinction of Dividend King. Back in 2008, Medtronic’s annual dividend was $0.50 per share, and through the 2008 financial crisis and into 2015- the year of the Covidien acquisition- the dividend had grown to $1.22. Today it stands at $2.84 annually, meaning the dividend has grown 5.7x over roughly 2 decades. Over the past decade, that is 7.49% growth and 4.71% over the past 5 years. Though there is a slowdown in their dividend growth, mainly attributable to the Covidien acquisition and growing debt from it, for a long-term investor, there is meaningful growth as seen in previous decades. Historically, reaching the status of Dividend King is associated with new institutional investors buying in, as funds that track dividend kings are mandated to buy into included companies, therefore leading to a short-term pop in the stock’s price. Their dividends have been sustainable for so many years and still are, as their 9-month operating cash flow of $4.8 Billion comfortably covers their $2.7 Billion of dividends paid with a 56% payout. 

When it comes to valuing the company, they are in relatively good standing when compared to their peers. With the sector trading at around 20x Forward Price to Earnings(P/E), Medtronic is at 15x, indicating it is trading at a 15x multiple to its earnings, compared to 20x for its peers. They are undervalued by this metric, and when their growth catalysts materialize, they could seriously close the gap in their valuation to the rest of the sector. The analyst consensus price target for the company sits at at $110- $112, indicating a roughly 26% upside from their current $87 price, which is still below the company’s all-time high of $117.57 from September 2021.

An AI Kingdom Begins…..

What the markets may be missing, and underpricing, is what Medtronic is building along with its current hardware. The company is slowly and methodically layering Artificial Intelligence and software across all of its segments, steering the company away from being a pure device manufacturer and into offering software solutions.  One of the most prominent examples of such is the GI Genius, developed in partnership with NVIDIA, an AI-powered endoscopy module that identifies and detects previously missed polyps with minimum false positives.  Medtronic has incorporated this into an open AI marketplace platform that allows for 3rd party developers to additionally build and sell software applications in addition to its hardware.  A concept similar to how developers can make apps that show up on the App Store, which is also available on an iPhone. If this scales in line with management’s expectations or even more, Medtronic can begin to generate recurring revenue on products that the company already sells.

The hardware anchor of the company’s AI strategy is Hugo, Medtronic’s robotic-assisted surgery system, which received U.S. FDA approval for certain surgeries as recently as a couple of months ago. The surgical robotics market is projected to grow from $9.3 Billion 2024 to over $16.4 billion by 2030. Medtronic’s objective is to capture a slice of the pie, particularly hospitals that have no robotic surgery programs at all. Due to this, Hugo’s open console design comes in at a much lower price than that of Da Vinci, making it an attractive entry point for many hospitals without an exorbitant amount of funding for the Robot-Assisted Surgery systems(RAS). This is precisely what the market hasn’t priced in due to its uncertainty and lack of longevity, giving Medtronic another aspect to thrive in.

Overall, Medtronic is an interesting spot. The Covidien M&A hangover with the large goodwill, the debt, the large underperforming Medical Surgical Segment, and more is a real concern that shouldn’t be ignored. But at Medtronic’s core, their business is genuinely seeing real growth. Their dividends are sustainable and approaching territories that only less than 100 companies have accomplished: being a Dividend King. In addition, two major catalysts will drive growth for the company: U.S. surgical robotics entry with Hugo and an AI software strategy that provides additional recurring revenue for Medtronic. For long- term investors who are adequately diversified and are able to identify when the concerns mentioned above, especially rising long- term debt, get out of hand, Medtronic is a company that could be a perfect investment. It is trading at a relatively cheap valuation in contrast to its peers, and they have real potential with its use of AI and RAS in the coming years.