Up Just 6% In 2023 Is Medtronic Stock A Better Pick Over Abbott?

MDT: Medtronic logo

Given its better prospects, we believe Medtronic stock (NYSE: MDT) is a better pick than its peer, Abbott stock (NYSE: ABT). Abbott trades at a higher valuation multiple of 4.9x revenues vs. 3.6x for Medtronic, partly due to its superior revenue growth and financial position. There is more to the comparison, and in the sections below, we discuss why we believe MDT will offer better returns than ABT in the next three years. We compare a slew of factors, such as historical revenue growth, stock returns, and valuation, in an interactive dashboard analysis of Medtronic vs. AbbottWhich Stock Is A Better Bet? Parts of the analysis are summarized below.

Looking at stock returns, MDT stock has faced a notable decline of 25% from levels of $115 in early January 2021 to around $85 now, while ABT stock has seen little change, remaining at levels of $110 over the same period. This compares with an increase of about 30% for the S&P 500 over this roughly three-year period.

Overall, the performance of ABT stock with respect to the index has been lackluster. Returns for the stock were 29% in 2021, -22% in 2022, and 0% in 2023. Also, MDT stock has underperformed the broader market in each of the last three years. Returns for the stock were -12% in 2021, -25% in 2022, and 6% in 2023. In comparison, returns for the S&P 500 were 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that MDT underperformed the S&P in 2021, 2022, and 2023, and ABT underperformed the S&P in 2022 and 2023.

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In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks, including heavyweights in the healthcare sector, including LLY, UNH, and JNJ, and even megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index, less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.

Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could MDT and ABT face a similar situation as they did in 2022 and 2023 and underperform the S&P over the next 12 months – or will they see a recovery? While we expect both stocks to trend higher, Medtronic will likely fare better between the two.

1. Abbott’s Revenue Growth Is Better

  • Abbott’s revenue growth has been better, with an 11% average annual growth rate in the last three years, compared to 3% for Medtronic.
  • High demand for COVID-19 testing has driven Abbott’s sales growth in recent years. However, this trend reversed in 2023, with diagnostic sales plunging 39% year over year.
  • Medtronic’s sales were hurt during the pandemic due to the postponement of elective surgeries. However, the company saw a rebound in sales over the last couple of years, aided by higher procedure volume. The company also benefits from its new products, including the Micra AV pacemaker and Abre venous self-expanding stent system for Deep Venous disease.
  • That said, its Medical Surgical segment sales are adversely impacted due to a continued decline in ventilator demand.
  • Our Abbott Revenue Comparison and Medtronic Revenue Comparison dashboards provide more insight into the companies’ sales.
  • Looking forward, Abbott’s revenue is expected to grow faster than Medtronic’s over the next three years.

2. Medtronic Is More Profitable But Comes With Higher Risk

  • Medtronic’s operating margin rose slightly from 16.6% in fiscal 2020 (fiscal ends in April) to 17.6% in 2023, while Abbott’s operating margin expanded from 15.5% in 2020 to 16.2% in 2023.
  • Looking at the last twelve-month period, Medtronic’s operating margin of around 17.4% fares marginally better than 16.2% for Abbott.
  • Our Medtronic Operating Income Comparison and Abbott Operating Income Comparison dashboards have more details.
  • Looking at financial risk, Abbott fares better. Its 8% debt as a percentage of equity is lower than 22% for Medtronic, while its 10% cash as a percentage of assets is slightly higher than 9% for the latter, implying that Abbott has a better debt position and more cash cushion.

3. The Net of It All

  • We see that Abbott has experienced better revenue growth and is in a better financial position, but Medtronic is more profitable.
  • Looking at prospects, using P/S as a base, due to high fluctuations in P/E and P/EBIT, we believe Medtronic is the better choice of the two.
  • If we look at valuation multiples, MDT fares slightly better. Medtronic is trading at 3.6x trailing revenues versus the last five-year average of 4.3x. In contrast, Abbott is trading at 4.6x revenues, compared to its last five-year average of 5.4x.
  • Our Medtronic (MDT) Valuation Ratios Comparison and Abbott (ABT) Valuation Ratios Comparison have more details.
  • The table below summarizes our revenue and return expectations for Medtronic and Abbott over the next three years and points to an expected return of 13% for MDT over this period vs. a 6% expected return for ABT, based on Trefis Machine Learning analysis – Medtronic vs. Abbott – which also provides more details on how we arrive at these numbers.

While MDT stock may outperform ABT, it is helpful to see how Medtronic’s peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

Returns Jan 2024
MTD [1]
Since start
of 2023 [1]
Total [2]
 MDT Return 4% 10% 20%
 ABT Return 2% 2% 193%
 S&P 500 Return 3% 27% 119%
 Trefis Reinforced Value Portfolio 0% 39% 612%

[1] Returns as of 1/26/2024
[2] Cumulative total returns since the end of 2016

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