Medical Stocks

Medtronic PLC Valuation – March 2018 $MDT

Company Profile (obtained from Marketwatch): Medtronic Plc is engaged in the medical technology-alleviating pain, restoring health, and extending life for millions of people around the world. Its customers include hospitals, clinics, third-party health care providers, distributors, and other institutions, including governmental health care programs and group purchasing organizations. The company operates through four segments: Cardiac and Vascular Group, Minimally Invasive Technologies Group, Restorative Therapies Group and Diabetes Group. The Cardiac and Vascular Group consist of three divisions : Cardiac Rhythm & Heart Failure, Coronary & Structural Heart and Aortic & Peripheral Vascular. The Minimally Invasive Technologies Group consists of two divisions: Surgical Solutions and Patient Monitoring and Recovery. The Restorative Therapies Group consists of four divisions: Spine, Neuromodulation, Surgical Technologies and Neurovascular. The Diabetes Group consists of three divisions: Intensive Insulin Management, Non-Intensive Diabetes Therapies and Diabetes Services & Solutions. The company was founded on January 26, 2015 and is headquartered in Dublin, Ireland.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of MDT – March 2018

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 $106,116,914,500 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.43 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 5.87% Fail
6. Moderate PEmg Ratio PEmg < 20 29.64 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.11 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 2.43 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.65 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 Fail

 

Stage 2: Determination of Intrinsic Value

EPSmg $2.64
MG Growth Estimate -2.43%
MG Value $9.60
Opinion Overvalued
MG Grade C
MG Value based on 3% Growth $38.32
MG Value based on 0% Growth $22.46
Market Implied Growth Rate 10.57%
Current Price $78.33
% of Intrinsic Value 816.31%

Medtronic plc. Ordinary Shares does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings growth over the last ten years, and the high PEmg ratio. The Enterprising Investor has concerns regarding the level of debt relative to the net current assets, and the lack of earnings growth over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $3.15 in 2014 to an estimated $2.64 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 10.57% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Medtronic plc. Ordinary Shares revealed the company was trading above its Graham Number of $45.99. The company pays a dividend of $1.72 per share, for a yield of 2.2%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 29.64, which was below the industry average of 37.66, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-14.

Medtronic plc. Ordinary Shares receives an average overall rating in the ModernGraham grading system, scoring a C.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$14.00
Graham Number $45.99
PEmg 29.64
Current Ratio 2.43
PB Ratio 2.11
Current Dividend $1.72
Dividend Yield 2.20%
Number of Consecutive Years of Dividend Growth 20

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Most Recent Balance Sheet Figures

Balance Sheet Information 1/1/2018
Total Current Assets $26,607,000,000
Total Current Liabilities $10,933,000,000
Long-Term Debt $25,918,000,000
Total Assets $95,800,000,000
Intangible Assets $61,973,000,000
Total Liabilities $45,566,000,000
Shares Outstanding (Diluted Average) 1,354,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.56
Apr2017 $2.89
Apr2016 $2.48
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

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.64
Apr2017 $2.73
Apr2016 $2.75
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

Recommended Reading:

Other ModernGraham posts about the company

Medtronic PLC Valuation – January 2016 Update $MDT
Medtronic PLC Valuation – October 2015 Update $MDT
Medtronic Inc. Analysis – July 2015 Update $MDT
27 Companies in the Spotlight This Week – 4/4/15
Medtronic plc Quarterly Valuation – March 2015 $MDT

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Disclaimer:

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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