Medtronic’s sluggish growth falls under spotlight as activist investor takes stake

Medtronic’s stock price has lagged behind competitors’ for years, with investors weary of the company’s pace of growth. But a firm known partly for its activist investments in large corporations is trying to change this.

The medtech company run from offices in Fridley disclosed Tuesday that Elliott Investment Management — which has previously banked on corporate turnarounds in companies such as Starbucks and Cardinal Health — has become one of its largest investors.

Elliott’s team thinks Medtronic has struggled to drive growth in the last few years and hasn’t invested in innovation in the same way peers have, a person familiar with the matter told the Minnesota Star Tribune. While Medtronic is scaled in every important area of medtech, it has yet to shine through with its strength in the highest-growth areas of the industry, the person continued.

Surgical robotics, pulsed field ablation and renal denervation are often highlighted as high-growth segments in medtech.

The overall size of the private investment remains undisclosed, but Elliott’s team views the transaction as a friendly partnership and the firm’s input has been well received in months of engagement with Medtronic’s leadership, the person said.

Meanwhile, Medtronic CEO Geoff Martha said during a call with investors Tuesday that the company’s leadership is reinvigorating its focus on growth “and creating oxygen to fuel that growth and drive earnings power.”

“We’re entering a new phase of our transformation to act more boldly and more decisively to deliver the strategic clarity, growth profile, operational rigor, investment strategy, and shareholder returns that this company is capable of,” Martha said.

Along with the investment announcement, Medtronic named BD Co. veteran John Groetelaars and former Stryker Chief Financial Officer Bill Jellison as independent directors. Medtronic is also creating a board growth committee responsible for “tuck-in” mergers and acquisitions, investments and potential divestitures, as well as an operating committee charged with accelerating earnings expansion. In a typical tuck-in acquisition, a larger company completely absorbs a smaller one.

In a note to investors, analyst Mike Kratky of Leerink Partners called the investment “an incrementally positive development” for Medtronic, “especially given Elliott’s track record of unlocking shareholder value.” Kratky explained a similar investment Elliott made in medical supply company Cardinal Health “resulted in a major positive for the stock.”

While Medtronic’s stock price has inched upward in recent months, the changes come amid a longer period of underperformance. Since a peak in September 2021, the price has fallen more than 30%. Medtronic’s stock price closed down by more than 3% on Tuesday. Kratky said U.S. revenue came in about a percentage point below expectations.

For the first quarter, which ended July 25, Medtronic reported about $1.63 billion in adjusted profit on $8.58 billion in total sales. Sales increased on an organic basis by 4.8% over the same quarter a year prior. While it held its revenue estimates for the fiscal year steady, it increased its adjusted earnings per share growth for the fiscal year by about half a percentage point. Sales and adjusted profit both beat analysts’ expectations.

Tuesday’s quarterly report marked the second consecutive update in which Medtronic unveiled significant changes. In May, the company announced the spinoff of its diabetes business and a leadership change, as well as reported how tariffs may affect the company for the first time.

In May, Medtronic announced it would spin off its multibillion dollar diabetes business. The unit selling insulin pumps, pens and continuous glucose monitors is the smallest of Medtronic’s major segments. The business grew by 7.9% on an organic basis, slightly slower than in previous quarters.

The diabetes business grew faster internationally compared with the U.S. segment, where the rollout of its smaller, disposable sensor Simplera is just ramping up. Que Dallara, who leads the diabetes business and will stay on as the CEO of the new company MiniMed after the spinoff, said the company now is doubling its first quarter production of the Simplera device to meet U.S. demand.

Martha said the diabetes business is entering a strong innovation cycle, pointing out its partnership with Abbott Laboratories creating an interoperable insulin pump that can use the competitor’s continuous glucose monitoring technology. Dallara said the technology is set to launch in the coming months.

“The separation will sharpen Medtronic’s focus on our core businesses … and it will also allow Medtronic to grow revenue and earnings faster without diabetes than we do with it today,” Martha said.

The spinoff will allow Medtronic to focus on high-growth areas such as surgical robotics and a procedure treating atrial fibrillation called pulsed field ablation (PFA).

The company’s segment housing the PFA technologies grew by more than 70% in the U.S., Piéton said.

Martha said he has witnessed one of Medtronic’s PFA systems and competitors’ technologies at work in the past quarter.