MiniMed Group, Inc. (MMED) stock intrinsic value fair value estimate & owner earnings analysis

MiniMed Group is the former Medtronic Diabetes business, listed in March 2026 when Medtronic sold a minority stake in an IPO; Medtronic still holds about 90% of the voting power and has said it intends to dispose of the rest. MiniMed makes insulin pumps (the MiniMed 780G automated insulin delivery system and the newly launched MiniMed Flex, cleared by the FDA in March 2026 and launched in the U.S. in June 2026) and sells the glucose sensors and supplies that go with them, including its own Simplera Sync sensor and the Instinct sensor made by Abbott. About 82% of the $3.10 billion of fiscal 2026 revenue (year ended April 24, 2026) is recurring sensors, consumables and services sold to an installed base of pump users in over 80 countries, and about 70% of revenue is earned outside the United States. Revenue grew from $2.47 billion in fiscal 2024 to $2.72 billion in fiscal 2025 and $3.10 billion in fiscal 2026, and rose another 17% in the first quarter of fiscal 2027. The problem is that this revenue has not yet produced cash for owners. Measured as operating cash flow, stripped of working-capital swings, after stock compensation and after the capital spending needed to maintain the business, owner earnings were about -$71 million in fiscal 2024, -$199 million in fiscal 2025 and -$117 million in fiscal 2026 (-$0.28, -$0.79 and -$0.46 per share). Each year carried items that will not repeat: fiscal 2024 and 2025 were flattered by $60 million and $46 million of development funding from Blackstone that has now ended; fiscal 2025 was hit by a $165 million settlement of a contract dispute over a product-funding arrangement; fiscal 2026 carried $142 million of restructuring, $36 million of separation transaction costs and $18 million of pump retainer-ring litigation. Adjusting for those, the underlying business earned roughly -$131 million, -$55 million and +$79 million: improving, but only one year above zero. Gross margin has slipped from 58% to 54% over the three years as lower-margin sensors, including the resold Abbott sensor, became a larger share of sales. The first quarter of fiscal 2027 (to July 31, 2026) showed a small operating profit of $5 million and break-even net income, but operating cash flow was still -$49 million. Two accounting judgements matter. First, the $157 million charge in fiscal 2026 for the minimum royalties owed to Blackstone on MiniMed Flex in its first two years after launch is a non-cash accrual in that year, so it is added back to earnings and instead subtracted as a debt-like obligation, since it will be paid in cash. A further minimum of up to $162 million would come due if the MiniMed Fit patch pump is approved and launched; because that depends on a product not yet approved, it is left out. Second, fiscal 2026 working capital absorbed over $300 million as the business took over its own receivables from Medtronic at separation; this is a one-time transfer, not a run-rate drain, and is excluded from owner earnings. The company has no borrowings. It holds $207 million of cash (July 31, 2026) and an undrawn $500 million revolving credit facility maturing March 2031. Because the business still burns cash in some quarters, only about $100 million of the cash is treated as surplus. Net of the $157 million Blackstone obligation, the company is a net payer of about $57 million before considering the business itself. Base case: underlying owner earnings of about $70 million a year, at or slightly below the fiscal 2026 adjusted level of $79 million, held flat. The earning power persists because of a structural feature with a 40-year record: pump users are locked into multi-year device cycles and acquire sensors and supplies continually, and that installed base has been served since the 1980s. No growth is credited, even though revenue has grown 10-14% a year: that growth came from new sensor launches and share gains, and the gross margin has fallen while it happened, so it has not yet shown up as owner cash. The business is worth about $1.17 billion; less the $57 million of net obligations, about $1.11 billion, or $3.95 per share. Bear case: a repeat of what this business actually went through in December 2021 to 2023, when an FDA warning letter on its Northridge, California facility held up U.S. approval of the 780G for roughly two years while Tandem and Insulet took U.S. share. Combined with continued gross-margin erosion from the Abbott sensor and the retainer-ring litigation, owner earnings fall back to the fiscal 2025 adjusted level of about -$50 million for three years, then recover only to about $30 million a year on the installed base. The business is worth about $290 million; after the $57 million of net obligations, about $230 million, or $0.81 per share. The cash and undrawn revolver can fund three years of losses without new shares, so the case carries itself. Bull case: the restructuring program already under way (employee terminations and facility consolidations charged in fiscal 2026), the roll-off of the transition-service charges paid to Medtronic, and the U.S. launch of MiniMed Flex carry owner earnings from $100 million next year to about $250 million (roughly 7-8% of current revenue) by year five, sustained thereafter. The business would be worth about $3.75 billion; after net obligations, about $3.69 billion, or $13.10 per share. What could make these numbers wrong: the earnings level itself is the biggest uncertainty, because the business has never reported a full year of positive owner earnings as a standalone company and its cost base as an independent public company is not yet visible. Medtronic's plan to exchange or distribute its remaining stake brings tax-matters restrictions (the company must keep minimum headcount and operations in Puerto Rico and indemnify Medtronic for certain taxes if the separation loses its tax-free treatment). The company also depends on Abbott for the Instinct sensor and agreed not to source sensors from certain Abbott competitors. Earlier figures we published for this company assumed margins would expand to 12-16% of revenue; those assumptions were not supported by anything the business has yet delivered, so the previous figures are not comparable. Margin-of-safety price. We are not confident in the earnings level: it is near zero, has been negative in every reported year, and one adjusted year of $79 million is the only evidence of profit. The worst plausible outcome is another product-quality crisis like the 2021 warning letter, or a recall arising from the retainer-ring litigation, arriving while the company still burns cash; with no debt and a $500 million revolver the company would survive it, but shareholders could be diluted if losses stretched beyond three years. If we are wrong about the cost savings and the margin decline continues, the shares are worth roughly $1; if we are wrong in the other direction and the restructuring delivers, more than $10. The business pays no dividend, so the whole return has to come from the business proving it can earn cash. The margin-of-safety price applies only once the company has shown four straight quarters in which operating cash flow covers capital spending, which would confirm that the base-case earnings level is real rather than hoped for. Once that is shown, the margin-of-safety price is $2.25: that price is roughly what the bear case is worth plus a modest amount for the installed base, and if the base case simply holds, the value reaches about $4 within three years, which implies about a 20% annual return, while a working restructuring adds upside that is not needed for that result.