Does This Move Make Medtronic Stock a Buy?

Over the past few years, Medtronic (NYSE: MDT) has faced significant challenges, including a pandemic-induced slowdown, relatively slow revenue growth, and economic issues that impacted its financial results. Throughout it all, Medtronic's diabetes care business has consistently been one of its fastest-growing segments.

However, the healthcare leader recently announced some news regarding this unit that might surprise some investors. Let's find out more about it and discuss what it means for Medtronic's prospects.

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Medtronic will spin off its diabetes care segment

Medtronic markets several products within its diabetes care segment. Perhaps its most important line is its insulin pump franchise. One of the latest iterations of this was the MiniMed 780G, which came with several nifty features, including automatic insulin dose corrections. Medtronic also markets continuous glucose monitoring (CGM) systems that allow diabetes patients to keep track of their blood sugar levels, with constant measurements every few minutes.

Additionally, it offers insulin pens and a software that collects information from CGM devices, insulin pumps, and smart pens to create reports to inform patients' progress or share with medical professionals. There is considerable room for growth in the diabetes market. Of the half-billion adults worldwide with diabetes, only 1% had access to CGM technology as of the end of 2023.

Image source: Getty Images.

One might think Medtronic would seize the vast untapped opportunity, especially considering its diabetes care unit's faster growth. During the company's fiscal 2025, ended April 25, Medtronic reported revenue of $33.6 billion, up 3.6% compared to the previous fiscal year.

The company's diabetes care segment generated $2.8 billion in sales, with year-over-year growth of 10.7%. True, it still makes up a small part of its business, but given the massive worldwide opportunity, it might have eventually become its biggest growth driver if it kept up its much faster growth pace for a long time.

However, Medtronic announced that it would spin off its diabetes care unit, which will become a stand-alone, publicly traded corporation within the next 18 months. Medtronic wants to simplify its portfolio and focus its resources on core, high-margin growth opportunities. That's the rationale management gave for the separation.

What does it mean for investors?

There are other reasons to buy the stock

Medtronic would likely struggle to catch up with the leaders in the diabetes care field. Abbott Laboratories and DexCom dominate the CGM market. In the insulin pump niche, Medtronic has had to compete with companies such as Tandem Diabetes Care. Perhaps Medtronic felt it would not be competitive in these and other niches of the diabetes market over the long run, hence its decision to focus on markets where it "has leading core competencies," to borrow the company's phrasing.

While Medtronic will lose its fastest-growing segment, its business should remain robust. The company still markets dozens of products across several other areas that generate consistent revenue and profits. In today's challenging environment, investors tend to gravitate toward steady and stable corporations like Medtronic.

Furthermore, the healthcare leader recently announced important news. The company is requesting U.S. clearance for its Hugo robotic-assisted surgery (RAS) system in urologic procedures after the device delivered strong clinical trial results. Approval of Medtronic's RAS Hugo system in the U.S. should unlock massive opportunities, given the industry's underpenetration and significant runway for growth.

Finally, Medtronic remains an excellent dividend stock, and it recently announced yet another payout hike. The medical device specialist has increased its dividends for 48 consecutive years -- just two more and it will join the exclusive rank of Dividend Kings.

Even with the potential impact of tariffs, Medtronic has performed relatively well this year compared to broader equity markets. In the long run, it should be able to mitigate the effects of tariffs, given its diversified business and consistent earnings, which can enable it to shift its manufacturing around.

Medtronic remains a top pick for long-term, income-oriented investors despite spinning off its fastest-growing unit.

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Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Abbott Laboratories. The Motley Fool recommends DexCom and Medtronic and recommends the following options: long January 2026 $75 calls on Medtronic, long January 2027 $65 calls on DexCom, short January 2026 $85 calls on Medtronic, and short January 2027 $75 calls on DexCom. The Motley Fool has a disclosure policy.