Medtronic has made significant changes under CEO Geoff Martha, who took the reins in April 2020 after Omar Ishrak retired. Those changes paved the way for what has been called the "new Medtronic" which appears to be a more nimble and competitive organization.

"Over the last 18 months, we've made significant changes to our operating model, moving to 20 focused operating units as well as making major enhancements to our culture and incentives. These changes have improved our pace of innovation and our competitiveness, as evidenced by recent product filings and approvals that came faster than expected," Martha said Tuesday during the company's fiscal third-quarter earnings call. "And we're not finished driving change. We're accelerating improvements to our global supply chain and operations, leveraging our scale to further improve quality, increase product availability, and reduce costs."

Martha also said the management team will be looking at the Medtronic portfolio with a more critical eye, with a focus on growth, and creating shareholder value.

"I'd be surprised if there weren't changes over the coming fiscal year, but I don't know yet if they will be smaller or more significant," he said.

Based on industry trends and analyst comments, however, there's a good chance that we'll see changes on the larger side. It's also fair to keep in mind that, because of Medtronic's size and scope, even a smaller change could be viewed as a big change from an outsider's perspective.

"With shares at the low end of their two-year average valuation (17.4x currently vs. 20.9x on average), limited expectations exist for [Medtronic] and we think now is a good time to rationalize [Medtronic's] portfolio, shed lower growth areas, and reinvest in the business as multiple expansion seems unlikely until these initiatives are progressed," Ryan Zimmerman, a medtech analyst at BTIG, said in a report Tuesday.

Zimmerman also suggested that Medtronic's diabetes unit could be a likely target for portfolio optimization, given its dilutive growth rates. As Martha has previously acknowledged, Medtronic has been missing out on the better growth of the diabetes market, and the company has increased its investments in the space in an effort to catch up with its peers. The diabetes business is also currently working through quality assurance issues that FDA flagged in a warning letter late last year.

Robbie Marcus, a medtech analyst at J.P. Morgan, tried to get Martha to elaborate a bit more on the potential changes we might see from the company.

"At the J.P. Morgan conference, you first mentioned maybe doing some bigger changes to the business. You mentioned it again today," Marcus said. "I was just hoping you could give us a little flavor for what you're thinking. Is it divestitures? Is it a bigger breakup of the company? And what's the time frame we should be thinking about for some of the larger potential actions?"

While Martha declined to get into specifics, his reply does give us at least a vague idea of what his line of thinking is.

"Our north star is durable growth. And we're looking at our businesses and we're evaluating them for, one, how well they fit into the portfolio, how well they fit into our strategy, are we the right owners of these assets? And then how we, Medtronic, add value and grow these businesses," he said. "It's still at this point like I said at the conference, we don't know if these changes will be significant or more limited."

'The spin is in' 

We also look at industry trends as an indicator of what type of change could potentially be in store for Medtronic.

Firms like EY (Ernst & Young) that closely track trends in the life sciences industries have suggested that medtech could see a large level of divestitures this year, as well as spinoff announcements.

"I think one of the themes that we're hearing is that the spin is in," John Babitt, a life sciences partner at EY, told MD+DI Managing Editor Omar Ford during a recent episode of the Let's Talk Medtech podcast.

We've already seen some significant examples of these trends.

Zimmer Biomet is in the final stages of spinning out its dental and spine business, BD is spinning out its diabetes business, Johnson & Johnson GE, and Bausch Health have each announced major operational splits, and Cook Medical is divesting its reproductive health unit.