Is Medtronic Finally Poised for a Turnaround

Key Takeaways

• Medtronic (MDT) is showing signs of a significant operational turnaround, with recent Q3 FY26 results marking its strongest enterprise revenue growth in ten quarters, driven by key product launches.
• The upcoming MiniMed diabetes business IPO and subsequent spin-off are strategic moves designed to unlock value and streamline Medtronic's focus on its core, higher-growth segments.
• Despite strong operational performance and a robust product pipeline, margin pressures from tariffs and a shifting product mix remain a near-term headwind, creating a nuanced investment landscape.

Is Medtronic Finally Poised for a Turnaround?

Medtronic, the medical device giant, appears to be navigating a pivotal moment, with recent financial results and strategic maneuvers suggesting a potential "inflection trade" for the stock. The company’s fiscal third-quarter 2026 earnings, reported on February 17, 2026, delivered a notable beat on both revenue and adjusted EPS, yet the stock initially slipped. This mixed market reaction underscores the tension between Medtronic's accelerating operational performance and persistent investor concerns over margin pressures.

The company reported $9.0 billion in revenue, an 8.7% increase on a reported basis and 6.0% organic growth year-over-year. This performance not only surpassed the consensus estimate of $8.89 billion but also marked Medtronic's strongest enterprise revenue growth in ten quarters, representing a 50 basis point acceleration from the previous quarter. Adjusted earnings per share came in at $1.36, beating expectations of $1.34. Such robust top-line expansion, particularly after a period of more subdued growth, is a critical indicator that Medtronic's multi-year turnaround strategy is gaining traction.

However, the market’s initial response saw shares dip, closing at a 0.74% loss on February 20, 2026, despite the earnings beat. This reaction highlights that while revenue growth is strong, investors are keenly focused on the underlying profitability and future margin trajectory. The stock currently trades at $96.83, well within its 52-week range of $79.55 to $106.33, suggesting that the market is still weighing the long-term growth potential against near-term operational challenges.

This dynamic creates an intriguing setup for investors. The narrative of a "textbook turnaround" is emerging, fueled by accelerating revenue and a robust product pipeline. Yet, the stock's muted reaction post-earnings signals that the market demands more clarity on how these growth drivers will translate into sustainable margin expansion and improved profitability, especially as the company navigates strategic shifts and external headwinds.

What Key Catalysts Are Driving Medtronic's Growth Engine?

Medtronic's recent performance is not merely a statistical anomaly but a reflection of several potent catalysts firing across its diverse portfolio. The Cardiovascular Portfolio, in particular, has been a standout, with revenue climbing an impressive 13.8% as reported and 10.6% organically, reaching $3.46 billion. This segment delivered its highest growth in ten years, excluding COVID comparables, showcasing renewed vitality. Within this, Cardiac Ablation Solutions (CAS) surged 80% year-over-year, with pulsed field ablation (PFA) offerings contributing a significant 80% of CAS revenue, demonstrating strong market adoption for innovative technologies.

Beyond cardiovascular, other segments are also contributing meaningfully. The Neuroscience Portfolio increased 4.1% to $2.56 billion, driven by ongoing launches like the Stealth AXiS commercial launch in Q4 FY26 and the NeuroGuard IEP Carotid Stent. The Medical Surgical Portfolio rose 4.9% to $2.17 billion, with the Hugo RAS U.S. commercial ramp, including planned hernia expansion in FY27, poised to be a significant growth driver. These new product introductions and expanded indications are critical for sustaining momentum and capturing market share in competitive medical device markets.

The Diabetes segment, despite its impending separation, also posted strong growth, up 14.8% to $796 million. Recent developments like the EMEA commercial launch of the MiniMed Go Smart MDI system with the Simplera sensor, and the availability of the Seven ATG system through pharmacy channels, are enhancing Medtronic's competitiveness and patient reach. These innovations are not just about incremental improvements; they represent strategic advancements that address critical patient needs and expand market access.

Management's confidence in accelerating revenue growth, excluding the 53rd week, and achieving high single-digit EPS growth in FY27, is underpinned by these specific product catalysts. The expectation is that continued momentum from Symplicity, UltraViva, and the expanding footprint of Hugo robotics will compound these growth drivers. This robust pipeline and strong segment performance are the bedrock of the bull case for Medtronic, signaling a company that is actively innovating and bringing new solutions to market.

How Will the MiniMed Spinoff Impact Medtronic's Future?

The planned separation of Medtronic's Diabetes business, MiniMed, into an independent public company is a strategic move with significant implications for Medtronic's long-term structure and valuation. This two-step process, involving an initial public offering (IPO) followed by a full split, is on track for completion by the end of calendar year 2026. The IPO roadshow for MiniMed Group, Inc. has already launched, aiming to sell 28 million shares at a price range of $25 to $28 per share, potentially raising up to $784 million.

This separation is designed to unlock value by allowing the Diabetes segment to operate with greater agility and focus, while enabling Medtronic to concentrate on its core, higher-margin businesses. Upon completion of the IPO, Medtronic will initially retain a substantial ownership stake, approximately 90.03% of MiniMed. This controlled public launch means that the initial valuation band for MiniMed, estimated at about $7.86 billion at the top end of the IPO price range, is largely set by the parent company. This tactical play aims to establish a clear market value for the diabetes unit, which has historically been a drag on Medtronic's overall growth narrative due to competitive pressures and regulatory challenges.

The proceeds from the IPO are intended for general corporate purposes, including the repayment of intercompany debt owed to Medtronic and as additional consideration for assets transferred during the separation. This financial restructuring will impact MiniMed's balance sheet and cash position post-IPO, and the exact terms of these financial flows remain a critical watchpoint. For Medtronic, the spin-off is expected to be slightly dilutive to EPS, with an estimated $0.01-0.02/month impact between the IPO and full separation, as share count reduction only occurs upon the full split.

Ultimately, the MiniMed separation is a bet on specialization. By shedding a segment that, despite its size and innovation, has faced intense competition and margin pressures, Medtronic aims to streamline its portfolio and improve its overall financial profile. The success of this strategy hinges on MiniMed's ability to thrive as an independent entity and Medtronic's ability to demonstrate accelerated growth and improved profitability in its remaining segments. The IPO pricing on March 5 and subsequent trading debut on Nasdaq under the symbol "MMED" will be the first real test of market appetite for the standalone diabetes business.

What Are the Primary Risks and Headwinds Facing Medtronic?

While Medtronic's recent performance signals a potential turnaround, significant risks and headwinds persist, primarily centered around margin compression and competitive dynamics. The company's Q3 gross margin of 64.9% was notably impacted by several factors, including a -100 basis point hit from product mix, specifically the capital equipment-heavy Cardiac Ablation Solutions (CAS) and early manufacturing ramp-up in Diabetes. Additionally, tariff headwinds are a substantial concern, with an estimated ~$185 million impact on FY26 COGS, including $93 million in Q3 alone, and a projected ~$300 million carryover into FY27.

This margin pressure is not merely a transient issue. The CFO expects CAS to remain slightly dilutive at the gross margin level due to its capital equipment mix, though it's "fantastic from an operating margin perspective." An inflection in CAS gross margin is not anticipated until the second half of FY27, as the catheter mix improves. This timeline means investors will need to be patient for the full benefits of the high-growth CAS segment to translate into improved gross profitability.

Competitive pressures are also a constant threat, particularly in the Structural Heart segment, where Medtronic has experienced some pressure post-Evolut FX+ anniversary in the U.S., despite gaining share in Europe. The medical device market is fiercely competitive, with established players and emerging innovators constantly vying for market share. Medtronic's strategy to fill portfolio gaps through investments like Anteris (balloon-expandable TAVR) is crucial, but success is not guaranteed.

Furthermore, the execution of the MiniMed separation carries its own set of risks. While designed to unlock value, any missteps in the IPO process, or a weaker-than-expected market reception for MiniMed, could create additional volatility for Medtronic shares. The company's debt-to-equity ratio of 0.57 and an enterprise value (EV) of $147.51 billion against a market cap of $124.20 billion indicate a stable capital structure but also highlight sensitivity to macroeconomic and sector-specific risks. These financial metrics, combined with the ongoing margin challenges, underscore the need for careful monitoring of Medtronic's operational efficiency and strategic execution.

Is Medtronic Stock a Buy, Hold, or Sell for Investors?

Evaluating Medtronic's current investment profile requires balancing its clear operational momentum against persistent margin challenges and strategic shifts. Wall Street analysts generally maintain a positive outlook, with a consensus rating of "Buy" from 49 analysts (1 Strong Buy, 26 Buy, 22 Hold, 0 Sell, 0 Strong Sell). The average analyst price target stands at $111.92, suggesting an upside of approximately 15.6% from the current price of $96.83. The highest target reaches $121.00, while the lowest is $100.00, indicating a relatively tight range of expectations.

From a valuation perspective, Medtronic trades at a TTM P/E ratio of 26.91, which is higher than some peers but reflects the expectation of accelerating growth. Its P/S ratio of 3.50 and P/FCF of 22.96 suggest a reasonable valuation for a company with its market position and growth catalysts. The dividend yield of 2.93%, with a quarterly payout of $0.71 per share, makes it attractive for income-focused investors, especially given its trajectory towards "Dividend King" status. The payout ratio of 78.6% is on the higher side, but management has consistently prioritized capital returns.

The bull case hinges on the continued strong performance of key segments like Cardiovascular, particularly the rapid adoption of PFA technologies, and the successful commercialization of new products such as Hugo RAS and Stealth AXiS. The MiniMed spin-off, if executed effectively, could streamline Medtronic's portfolio and allow for a clearer valuation of its remaining high-growth businesses. Management's reiterated FY26 guidance for ~5.5% organic revenue growth and adjusted EPS between $5.62 and $5.66 provides a clear roadmap for the near term.

However, the bear case focuses on the ongoing margin pressures from tariffs and product mix, which could continue to temper profitability despite top-line growth. The competitive landscape in segments like Structural Heart also presents a challenge. While analysts are largely optimistic, recent rating changes from JP Morgan and Baird maintaining "Neutral" positions suggest a cautious stance from some corners of the market, awaiting clearer signs of margin inflection. Investors should weigh these factors carefully.

Medtronic presents a compelling "inflection trade" opportunity, driven by robust product innovation and strategic portfolio optimization. While near-term margin pressures and the complexities of the MiniMed spin-off warrant careful monitoring, the company's accelerating revenue growth and strong pipeline suggest a positive trajectory for long-term investors. The current valuation, coupled with a solid dividend, offers an attractive entry point for those willing to ride out the transitional period.

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