ModernGraham Quarterly Valuation Of Medtronic

| About: Medtronic plc (MDT)
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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. 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 (NYSE:MDT) fares in the ModernGraham valuation model.

MDT Chart

MDT data by YCharts

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

  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 - PASS
  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 $59.85
MG Value $76.87
MG Opinion Fairly Valued
Value Based on 3% Growth $49.06
Value Based on 0% Growth $28.76
Market Implied Growth Rate 4.59%
Net Current Asset Value (NCAV) $2.51
PEmg 17.69
Current Ratio 3.62
PB Ratio 3.09

Balance Sheet - 1/24/2014

Current Assets $20,386,000,000
Current Liabilities $5,632,000,000
Total Debt $9,601,000,000
Total Assets $37,231,000,000
Intangible Assets $12,965,000,000
Total Liabilities $17,877,000,000
Outstanding Shares 1,000,810,000

Earnings Per Share

2014 (estimate) $3.82
2013 $3.37
2012 $3.22
2011 $2.86
2010 $2.79
2009 $1.93
2008 $1.95
2007 $2.41
2006 $2.09
2005 $1.48
2004 $1.60

Earnings Per Share - ModernGraham

2014 (estimate) $3.38
2013 $3.05
2012 $2.78
2011 $2.50
2010 $2.30
2009 $2.02

Dividend History

MDT Dividend Chart

MDT Dividend data by YCharts


Medtronic Inc. is suitable for both the Defensive Investor and the Enterprising Investor. The company only fails one requirement of either investor, and that is the PB ratio, which is too high in this case. As a result, value investors seeking to follow the ModernGraham approach based on Benjamin Graham's methods should feel comfortable proceeding with further research including a review of ModernGraham's valuation of Johnson & Johnson and ModernGraham's valuation of Abbott Laboratories. From a valuation side of things, the company appears to be fairly valued after growing EPSmg (normalized earnings) from $2.30 in 2010 to an estimated $3.38 for 2014. This demonstrated level of growth supports the market's implied estimate of 4.59% earnings growth, and the ModernGraham valuation model returns an estimate of intrinsic value that falls within a margin of safety in relation to the price.

Disclaimer: The author did not hold a position in Medtronic Inc. (MDT) or any of the other companies listed in this article at the time of publication and had no intention of changing that position within the next 72 hours.