This is great news for Medtronic, but is it time to buy the stock?

Medtronic (MDT 0.59%)posted first-quarter earnings (for the period ended June 30) that beat the average Wall Street estimate. The results were strong enough for the medical technology giant to raise its full-year profit forecast.

Investors should welcome the improved outlook, which could signal the start of a bigger turnaround for the company. Medtronic shares rose on the report, but are still down more than 30% from their record high set at the end of 2021.

Here’s why I think now is a good time to add Medtronic stock to your portfolio.

Product innovation drives growth

Medtronic’s headline numbers point to a strong start to fiscal 2025. For the company’s first quarter, adjusted earnings per share (EPS) of $1.23 beat the consensus estimate by $0.03, representing an 8% increase from year to year at a constant currency. . First-quarter revenue reached $8 billion, up 5.3% organically from the prior quarter.

Product innovation that drives growth is a major theme for Medtronic. Over the past year, approximately 130 devices in the health technology company’s portfolio have received approval from relevant regulatory agencies and are now gaining market adoption. This includes the MiniMed 780G Automated Insulin Delivery (AID) System, approved by the US Food and Drug Administration (FDA) in 2023. This helped the diabetes segment’s organic sales grow by 12.6%.

This recovery is particularly important. Weakness in the diabetes group in recent years, reverting to a global recall of the previous-generation MiniMed 600 series device in 2021, weighed on company-wide results and hurt the stock over the period. Notably, the FDA approved Simplera, a single-use all-in-one continuous glucose monitor (CGM) that works with the MiniMed 780G.

The larger cardiovascular business was also a strength, with organic growth of 6.9% in the first quarter, accelerating sequentially from fiscal 2024. Management cited overall performance in products from cardiac pacing therapies, cardiac surgery , defibrillation and coronary solutions. solutions.

In terms of guidance, Medtronic now expects revenue growth in 2025 between 4.5% and 5%, an increase at the lower end of the range from 4%. Similarly, the company sees full-year EPS in a range of $5.42 to $5.50, raising the low end of the estimate. During the earnings conference call, management expressed confidence in the continuation of trends in the second half of the year and beyond.

Image source: Getty Images.

A positive long-term outlook

What I like about Medtronic is the company’s diversification, covering several high-profile healthcare markets globally. Secular tailwinds, including the effect of an aging population and increased spending on chronic disease treatment, support a positive long-term outlook for the company.

The most compelling bullish case for Medtronic stock as an investment opportunity is the feeling that the company is back on track after the past few difficult years.

The comeback in the Diabetes segment helps reaffirm the company’s leadership position in the AID and smart multiple daily injections space as a growth driver that may still be in the early stages of its global potential. Success in integrating more high-tech features across the entire product line maintains the company’s innovative edge while adding to profitability margins.

Medtronic stock may be undervalued

Finally, Medtronic stock looks like a bargain, trading at just 16 times full-year consensus EPS as a forward price-to-earnings (P/E) ratio.

This level represents a discount from a similar group of medical device companies such as Abbott Laboratories, Stryker, Boston Scientific, Edwards Life Sciencesand GE Healthcare Technologieswhich trades at an average P/E ratio closer to 26. Medtronic stock also offers a dividend yield of 3.2%, which is above the industry average.

My interpretation is that Medtronic is fundamentally undervalued. The company’s ability to continue to execute on its profitable growth strategy should be a catalyst for the stock to move higher.

MDT Data PE Report (before) by YCharts.

Lots of reasons to be bullish on Medtronic

Medtronic’s latest update indicating a resurgence of operational and financial momentum is great news for investors. As long as macroeconomic conditions remain resilient, I think the stock deserves a buy rating and can work in the context of a diversified portfolio.