Medtronic Quarterly Stock Valuation
Summary
- Medtronic is suitable for both Defensive Investors and Enterprising Investors following the ModernGraham approach.
- According to the ModernGraham valuation model, the company is fairly valued at the present time.
- The market is implying 4.74% earnings growth over the next 7-10 years.
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 5 More Undervalued Companies for the Defensive Investor. 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 Inc. (NYSE:MDT) fares in the ModernGraham valuation model.
Defensive Investor - must pass at least 6 of the following 7 tests: Score = 6/7
- Adequate Size of Enterprise - market capitalization of at least $2 billion - PASS
- Sufficiently Strong Financial Condition - current ratio greater than 2 - PASS
- Earnings Stability - positive earnings per share for at least 10 straight years - PASS
- Dividend Record - has paid a dividend for at least 10 straight years - PASS
- 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
- Moderate PEmg (price over normalized earnings) ratio - PEmg is less than 20 - PASS
- 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
- Sufficiently Strong Financial Condition, Part 1 - current ratio greater than 1.5 - PASS
- Sufficiently Strong Financial Condition, Part 2 - Debt to Net Current Assets ratio less than 1.1 - PASS
- Earnings Stability - positive earnings per share for at least 5 years - PASS
- Dividend Record - currently pays a dividend - PASS
- Earnings growth - EPSmg greater than 5 years ago - PASS
Valuation Summary
Key Data:
| Recent Price | $65.66 |
| MG Value | $81.32 |
| MG Opinion | Fairly Valued |
| Value Based on 3% Growth | $52.96 |
| Value Based on 0% Growth | $31.05 |
| Market Implied Growth Rate | 4.74% |
| Net Current Asset Value (NCAV) | $2.52 |
| PEmg | 17.98 |
| Current Ratio | 3.82 |
| PB Ratio | 3.34 |
Balance Sheet - 7/25/2014
| Current Assets | $20,770,000,000 |
| Current Liabilities | $5,433,000,000 |
| Total Debt | $10,323,000,000 |
| Total Assets | $37,554,000,000 |
| Intangible Assets | $13,037,000,000 |
| Total Liabilities | $18,306,000,000 |
| Outstanding Shares | 979,520,000 |
Earnings Per Share
| 2015 (estimate) | $4.02 |
| 2014 | $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 |
Earnings Per Share - ModernGraham
| 2015 (estimate) | $3.65 |
| 2014 | $3.38 |
| 2013 | $3.05 |
| 2012 | $2.78 |
| 2011 | $2.50 |
| 2010 | $2.30 |
Dividend History
MDT Dividend data by YCharts
Conclusion:
Medtronic qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor's only initial concern is the high PB ratio while the company satisfies all of the Enterprising Investor's requirements. As a result, value investors following the ModernGraham approach based on Benjamin Graham's methods should feel comfortable proceeding with further research into the company and comparing it to other opportunities through a review of ModernGraham's valuation of Johnson & Johnson (JNJ)
As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $2.50 in 2011 to an estimated $3.65 for 2015. This level of demonstrated growth supports the market's implied estimate of 4.74% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham's formula, to return an estimate of intrinsic value within a margin of safety relative to the price.
Medtronic's growth in its EPSmg demonstrates a long-term trend in the company's earnings, a sight that value investors love to see. Overall, EPSmg has grown in each of the last five years, and it should be expected that growth will continue into the future. The ModernGraham valuation is based on an estimate of growth of 6.88%, though the actual growth achieved by Medtronic is over 9% annually. As a result, it is clear that the market's current pricing of Medtronic may be a little low, though as stated it does fall within a margin of safety and therefore the ModernGraham conclusion is the company appears to be fairly valued.
Be sure to check out previous ModernGraham valuations of Medtronic for better perspective.
This article was written by
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