Medtronic PLC Valuation – July 2016 $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 Companies Benjamin Graham Would Invest In Today - June 2016.  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 – July 2016

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 $124,242,696,600 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 3.29 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 42.28% Pass
6. Moderate PEmg Ratio PEmg < 20 26.96 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.44 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 3.29 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.84 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 July 2016

EPSmg $3.30
MG Growth Estimate 0.96%
MG Value $34.43
Opinion Overvalued
MG Grade B-
MG Value based on 3% Growth $47.91
MG Value based on 0% Growth $28.08
Market Implied Growth Rate 9.23%
Current Price $89.07
% of Intrinsic Value 258.73%

Medtronic PLC qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the high PEmg ratio. The Enterprising Investor is only concerned with the level of debt relative to the net current assets. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $3.11 in 2013 to an estimated $3.3 for 2017. This level of demonstrated earnings growth does not support the market’s implied estimate of 9.23% 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.

Medtronic PLC performs fairly well in the ModernGraham grading system, scoring a B-.

Stage 3: Information for Further Research

MDT charts July 2016

Net Current Asset Value (NCAV) -$16.91
Graham Number $62.06
PEmg 26.96
Current Ratio 3.29
PB Ratio 2.44
Current Dividend $1.52
Dividend Yield 1.71%
Number of Consecutive Years of Dividend Growth 20


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Most Recent Balance Sheet Figures

Balance Sheet Information 4/1/2016
Total Current Assets $23,600,000,000
Total Current Liabilities $7,165,000,000
Long-Term Debt $30,247,000,000
Total Assets $99,782,000,000
Intangible Assets $68,399,000,000
Total Liabilities $47,719,000,000
Shares Outstanding (Diluted Average) 1,425,900,000

Earnings Per Share History

Next Fiscal Year Estimate $4.60
Apr2016 $2.48
Apr2015 $2.41
Apr2014 $3.02
Apr2013 $3.37
Apr2012 $3.41
Apr2011 $2.86
Apr2010 $2.79
Apr2009 $1.93
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 $0.90
Apr1999 $0.40
Apr1998 $0.48
Apr1997 $0.56

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $3.30
Apr2016 $2.75
Apr2015 $2.93
Apr2014 $3.15
Apr2013 $3.11
Apr2012 $2.84
Apr2011 $2.50
Apr2010 $2.30
Apr2009 $2.02
Apr2008 $2.01
Apr2007 $1.96
Apr2006 $1.64
Apr2005 $1.34
Apr2004 $1.21
Apr2003 $0.96
Apr2002 $0.76
Apr2001 $0.70

Recommended Reading:

Other ModernGraham posts about the company

Medtronic PLC Valuation – January 2016 Update $MDT
Medtronic PLC Valuation – October 2015 Update $MDT
Medtronic PLC Valuation – October 2015 Update $MDT
Medtronic Inc. Analysis – July 2015 Update $MDT
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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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