Medtronic vs. Insulet: Which Diabetes Stock is a Better Choice?

Ireland-based Medtronic plc (MDT) develops and sells device-based medical therapies to hospitals, physicians, clinicians, and patients worldwide. It operates through four segments: Cardiovascular Portfolio; Neuroscience Portfolio; Medical-Surgical Portfolio; and Diabetes Operating Unit. In comparison, Billerica, Mass.-based Insulet Corporation (PODD) develops, manufactures, and sells insulin delivery systems for people with insulin-dependent diabetes.

Diabetes is one of the most prevalent diseases in the world. Studies show that in the United States, more than one in 10 people has diabetes. Furthermore, recent research has revealed that diagnosed cases of type 1 and type 2 diabetes are surging among the youth in the United States. The number of people below age 20 diagnosed with type 1 diabetes increased by 45%, while people diagnosed with type 2 diabetes increased by 95% from 2001 - 2017. The increasing number of diabetic patients should represent a promising market for companies involved in treating the disease. So, both MDT and PODD, which are noteworthy players in the market, are well-positioned to benefit.

PODD’s shares have gained 1.9% in price over the past six months, while MDT has returned 1.5%. In terms of their past year’s performance, PODD is the winner with 19.9% gains versus MDT’s 18.8%. Also, PODD’s 17.6% gains year-to-date compare with MDT’s 9.1% returns.

Click here to checkout our Healthcare Sector Report for 2021

But which stock is a better buy now? Let’s find out.

Latest Developments

On October 11, MDT announced that its Hugo™ robotic-assisted surgery system received European CE mark approval, authorizing the sale of the system in Europe. Also, the company recently received CE Mark approval for its radial artery access portfolio. Commercializing these products in the European market should garner substantial returns for the company in the near term.

On September 30, PODD presented positive pivotal trial extension phase results for its Omnipod® 5 automated insulin delivery system. The study shows significant improvements in glycemic control with one year of use. “This product is having an enduring positive impact on trial participants’ health, and we couldn’t be more proud," according to Dr. Trang Ly, Insulet Senior Vice President, and Medical Director.

Recent Financial Results

MDT’s net sales increased 22.7% year-over-year to $7.99 billion in its fiscal first quarter ended July 30. Its operating profit stood at $859 million, up 27.6% from the same period last year. Its net income attributable to MDT grew 56.7% from its year-ago value to $763 million. The company’s EPS increased 55.6% year-over-year to $0.56.

For its fiscal second quarter, ended June 30, PODD’s revenues increased 16.3% year-over-year to $263.20 million. Its operating income declined 4.4% from its year-ago value to $26.30 million. Its net income declined 273.6% from the same period last year to a negative $25 million. The company’s EPS decreased 268.2% year-over-year to a negative $0.37.

Past and Expected Financial Performance

MDT’s revenues have grown at a 1.8% CAGR over the past three years. Analysts expect MDT’s revenue to increase 9.6% in the current year and 5.7% in the following year. The company’s EPS is expected to grow 8.5% in the current quarter, 28.6% in the current year, and 10.2% in the next year. And its EPS is expected to grow 13.6% per annum over the next five years.

In comparison, PODD’s revenues grew at a 25.8% CAGR over the past three years. Analysts expect the company’s revenue to increase 20.2% in the current quarter, 20% in the current year, and 20.8% in the next year. The company’s EPS is expected to grow 242.3% in the current quarter, 200% in the current year, and 426.7% in the following year. Furthermore, PODD’s EPS is expected to grow 194.2% per annum over the next five years.

Profitability

MDT is more profitable with gross profit and EBITDA margins of 66.95% and 28.97%, respectively, compared to PODD’s 66.60% and 12.42%.

Furthermore, MDT’s 4.34% and 5.14% respective ROA and ROTC compare with PODD’s 2.08% and 2.32%. Thus, MDT is more profitable here.

Valuation

In terms of forward EV/Sales, PODD is currently trading at 19.41x, which is 70.7% higher than MDT’s 5.68x. Also, PODD’s 3.00 forward non-GAAP PEG ratio is 31% higher than MDT’s 2.07.

Thus, MDT is relatively more affordable here.

POWR Ratings

MDT has an overall rating of B, which equates to Buy in our proprietary POWR Ratings system. In contrast, PODD has an overall C rating, which translates to Neutral. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Both the stocks have a Growth grade of B, consistent with their stable rise in revenues over the past few years.

Of the 180 stocks in the Medical - Devices & Equipment industry, MDT is ranked #17, while PODD is ranked #103.

Beyond what we’ve stated above, we have also rated the stocks for Value, Stability, Momentum, Quality, and Sentiments. Click here to view MDT ratings. Also, get all PODD ratings here.

The Winner

Diabetes is becoming a huge concern worldwide as the number of diabetic people increases rapidly. This should bode well for both MDT and PODD. However, we think MDT’s higher profitability and lower valuation make it the better choice here.

Our research shows that odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Medical - Devices & Equipment industry here.

Click here to checkout our Healthcare Sector Report for 2021

MDT shares were trading at $121.73 per share on Monday morning, down $6.02 (-4.71%). Year-to-date, MDT has gained 5.48%, versus a 20.68% rise in the benchmark S&P 500 index during the same period.

Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.

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