Medtronic(NYSE:MDT)a medical device specialist, has performed well this year. This is despite the threat of tariffs having a significant impact on its earnings. But despite this headwind, its financial results have been strong and the outlook for next year remains bright.
Things got even better recently when Medtronic received US regulatory clearance for a device that could become a major growth driver for the healthcare giant. Let’s examine the issue in more detail and decide whether these developments make Medtronic an attractive stock to invest in.
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Medtronic began developing the Hugo system, a robot-assisted surgery (RAS) device, more than 10 years ago. The company made a tremendous discovery Underappreciated opportunity in the RAS marketBecause the adoption of these machines has been insufficient to handle the volume of procedures amenable to robotic assistance.
As management observes in 2023, although RAS provides benefits, less than 5% of surgeries that can be performed robotically are performed this way. Robotic devices help perform minimally invasive surgeries. They use small instruments that are inserted into patients’ bodies through small incisions. There is no need for large incisions to provide direct access to organs as in open surgeries.
The Hugo system had been used for years in various countries, but had not yet received approval in the United States, its most lucrative market. Now this has changed. Medtronic recently announced that the Hugo system has been approved for use in urological procedures in the United States. What does this mean for Medtronic’s financial results?
Hugo will have to confront his system Intuitive SurgeryIn this indicator da Vinci system. It is worth noting that, as of last year, urology was the third largest specialty of the da Vinci system in the United States and the largest specialty outside the United States. So this market represents a non-negligible percentage of Intuitive Surgical’s revenue from its da Vinci system, which is by far its most important growth driver. What does this mean for Medtronic?
The company will need to persuade healthcare facilities to choose Hugo over the more established (and more thoroughly studied in real-world procedures) da Vinci system. It will also take time for Medtronic’s new device to increase procedure volume.
But if we assume that 10% of Intuitive Surgical’s $8.35 billion comes from urological procedures and give 10% of that ($835 million) to Medtronic, the resulting amount doesn’t add much to the company’s $34.76 billion. last 12 months revenues. And again, it will take some time for Medtronic to reach 10% market share. In other words, the approval of the Hugo system will not have much of a material impact on next year’s financial results.
But that doesn’t mean this milestone is meaningless. Here are three reasons why.
First, Medtronic will look for indications beyond urology. He has already tested the device in hernia repairs. New indications have been a major driver of procedural volume growth for Intuitive Surgical. The same will ultimately be true for Medtronic’s Hugo system.
Second, as mentioned earlier, the RAS market is severely underpenetrated. Greater adoption of the technology will help grow Medtronic’s installed base for the Hugo system. Over time, the company should generate consistent revenue from this device, especially as procedure volumes increase.
Third, the world’s aging population should provide further growth fuel for the healthcare industry as well as this niche of the industry and, by extension, Medtronic.
But does all this make Medtronic shares a buy? The company’s strong financial results, growth drivers beyond RAS targets, and excellent dividend program make it attractive to those looking for patient, long-term income.
Medtronic has increased its dividend for 48 consecutive years. In a few years, it will be the Dividend King, a company that offers dividend increases to shareholders for at least 50 years. And it should continue to increase its dividend every year for years to come. I think the stock will be purchased despite the tariff issue.
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Prosper Junior Bakiny They have positions at Intuitive Surgery. The Motley Fool has positions in and recommends Intuitive Surgery. The Motley Fool recommends Medtronic and recommends the following options: long January 2026 $75 calls on Medtronic and short January 2026 $85 calls on Medtronic. The Motley Fool has a feature disclosure policy.
