Medtronic plc Quarterly Valuation – March 2015 $MDT

Medtronic_Logo.svgBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Most Undervalued Companies for the Defensive Investor – March 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Medtronic plc (MDT) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Medtronic plc is a medical technology, services and solutions company. The Company offers its products to hospitals, physicians, clinicians and patients in over 160 countries. The Company’s portfolio includes surgical, respiratory and monitoring, and vascular therapies solutions along with a line of patient care products to alleviate pain, restore health and extend life for people. The Company operates in three segments: Cardiac and Vascular Group, Restorative Therapies Group and Diabetes Group. The Cardiac and Vascular Group segment manufactures and markets device-based medical therapies for Cardiac Rhythm Disease Management (CRDM), Coronary, Structural Heart and Endovascular. The Restorative Therapies Group segment manufactures and markets device-based medical therapies for Spine, Neuromodulation and Surgical Technologies. The Diabetes Group segment manufactures and markets device-based medical therapies for diabetes. Medtronic Inc is a wholly owned subsidiary of Medtronic plc.

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 5/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion - PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 - PASS
  3. Earnings Stability – positive earnings per share for at least 10 straight years - PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years - PASS
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period - PASS
  6. Moderate PEmg ratio – PEmg is less than 20 - FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 - FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 5/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 - PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 - PASS
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend - PASS
  5. Earnings growth – EPSmg greater than 5 years ago - PASS

Valuation Summary

Key Data:

Recent Price $77.38
MG Value $65.07
MG Opinion Overvalued
Value Based on 3% Growth $48.98
Value Based on 0% Growth $28.71
Market Implied Growth Rate 7.20%
Net Current Asset Value (NCAV) $3.11
PEmg 22.91
Current Ratio 6.80
PB Ratio 3.82

Balance Sheet - January 2015

Current Assets $38,161,000,000
Current Liabilities $5,613,000,000
Total Debt $26,641,000,000
Total Assets $55,233,000,000
Intangible Assets $13,289,000,000
Total Liabilities $35,060,000,000
Outstanding Shares 995,800,000

Earnings Per Share

2015 (estimate) $3.76
2014 $3.02
2013 $3.37
2012 $3.41
2011 $2.86
2010 $2.79
2009 $1.84
2008 $1.95
2007 $2.41
2006 $2.09
2005 $1.48

Earnings Per Share – ModernGraham

2015 (estimate) $3.38
2014 $3.15
2013 $3.10
2012 $2.83
2011 $2.49
2010 $2.27

Dividend History


Medtronic plc (MDT) is suitable for the Enterprising Investor but not for the Defensive Investor.  The Defensive Investor is concerned by the high PEmg and PB ratios, while the Enterprising Investor has no initial concerns.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel very comfortable proceeding with further research and comparing the company to other opportunities.  From a valuation side of things, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $2.49 in 2011 to only an estimated $3.38 for 2015.  This level of demonstrated growth does not support the market’s implied estimate of 7.2% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value below the price.

Be sure to check out previous ModernGraham valuations of Medtronic plc (MDT) for greater perspective!

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Medtronic plc (MDT)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in Medtronic plc (MDT) or in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.






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