Medtronic PLC Valuation – January 2016 Update $MDT

Benjamin 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 10 Most Undervalued Companies for the Defensive Investor – November 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 stock analysis showing a specific look at how Medtronic PLC (MDT) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Medtronic plc (Medtronic) is a medical technology and services company. The Company develops, manufactures and markets its medical devices and technologies to hospitals, physicians, clinicians and patients in approximately 160 countries. The Company operates in four segments: Cardiac and Vascular Group, Minimally Invasive Technologies Group, Restorative Therapies Group and Diabetes Group. The Cardiac and Vascular Group segment includes Cardiac Rhythm & Heart Failure, Coronary & Structural Heart and Aortic & Peripheral Vascula. Its Minimally Invasive Technologies Group segment includes Surgical Solutions and Patient Monitoring and Recovery. Its Restorative Therapies Group segment includes Spine, Neuromodulation, Surgical Technologies and Neurovascular. Its Diabetes Group segment includes Intensive Insulin Management, Non-Intensive Diabetes Therapies and Diabetes Services & Solutions. Medtronic, Inc. is a subsidiary of the Company.


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Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.


Downloadable PDF version of this valuation:

ModernGraham Valuation of MDT

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $103,928,999,974 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 3.53 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 39.52% Pass
6. Moderate PEmg Ratio PEmg < 20 25.33 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.08 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 3.53 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.64 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

MDT value chart January 2016

EPSmg $3.00
MG Growth Estimate 0.87%
MG Value $30.68
Opinion Overvalued
MG Value based on 3% Growth $43.45
MG Value based on 0% Growth $25.47
Market Implied Growth Rate 8.42%
Current Price $75.91
% of Intrinsic Value 247.45%

Medtronic PLC qualifies for both the Enterprising Investor and the more conservative Defensive Investor.  The Defensive Investor is only initially concerned with the high PEmg ratio.  The Enterprising Investor’s only initial concern is the level of debt relative to the net current assets.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $2.83 in 2012 to an estimated $3.00 for 2016.  This level of demonstrated earnings growth does not support the market’s implied estimate of 8.42% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price.

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.

Stage 3: Information for Further Research

MDT charts January 2016

Net Current Asset Value (NCAV) -$16.76
Graham Number $51.76
PEmg 25.33
Current Ratio 3.53
PB Ratio 2.08
Dividend Yield 1.80%
Number of Consecutive Years of Dividend Growth 20



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Most Recent Balance Sheet Figures

Balance Sheet Information Oct2015
Total Current Assets $28,723,000,000
Total Current Liabilities $8,126,000,000
Long-Term Debt $33,690,000,000
Total Assets $104,945,000,000
Intangible Assets $69,005,000,000
Total Liabilities $52,676,000,000
Shares Outstanding (Diluted Average) 1,428,800,000

Earnings Per Share History

Next Fiscal Year Estimate $3.22
Apr2015 $2.41
Apr2014 $3.02
Apr2013 $3.37
Apr2012 $3.41
Apr2011 $2.86
Apr2010 $2.79
Apr2009 $1.84
Apr2008 $1.95
Apr2007 $2.41
Apr2006 $2.09
Apr2005 $1.48
Apr2004 $1.60
Apr2003 $1.30
Apr2002 $0.80
Apr2001 $0.85
Apr2000 $0.89
Apr1999 $0.39
Apr1998 $0.51
Apr1997 $0.50
Apr1996 $0.45

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $3.00
Apr2015 $2.93
Apr2014 $3.15
Apr2013 $3.10
Apr2012 $2.83
Apr2011 $2.49
Apr2010 $2.27
Apr2009 $1.99
Apr2008 $2.01
Apr2007 $1.96
Apr2006 $1.64
Apr2005 $1.34
Apr2004 $1.21
Apr2003 $0.96
Apr2002 $0.76
Apr2001 $0.70
Apr2000 $0.60

Recommended Reading:

Other ModernGraham posts about the company

Medtronic PLC Valuation – October 2015 Update $MDT
Medtronic Inc. Analysis – July 2015 Update $MDT
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Medtronic plc Quarterly Valuation – March 2015 $MDT
15 Companies in the Spotlight This Week – 12/27/14

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The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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