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Analyzing Medtronic’s Valuations Compared to Its Peers

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Peer comparison

On March 30, 2016, Medtronic (MDT) was trading at a forward PE (price-to-earnings) ratio of ~15.9x—compared to the industry average of 19.8x. Over the past year, the company’s forward PE ratio has been 14.9x–19.5x. The company is trading at lower multiples than its peers Becton Dickinson (BDX), Stryker (SYK), and Boston Scientific (BSX). They’re trading at PE ratios of 17.4x, 18.6x, and 17x, respectively.

VALUATION

The forward PE ratio is calculated by dividing the company’s current stock price by its 12-month earnings estimate. The PE ratio is a measure of the company’s potential growth.

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Medtronic’s fundamentals

Medtronic has a leading portfolio of products in the cardiovascular segment. It’s growing at a tremendous pace in emerging markets. It’s leveraging Covidien’s product portfolio and its market reach. The company follows a consistent and strong growth strategy that consists of therapy innovation, expansion across geographies, and a focus on value-based healthcare to be able to continue to deliver growth along with the evolution of its business model. This strengthens its market position in the medical device industry. The industry is undergoing disruption. It poses a number of sustainability challenges to companies that don’t strive to evolve. Although currency headwinds and continued slow growth in the neuromodulation and spine segment will have an impact on the company’s near-term growth, it’s expected to grow at a sustainable pace with improving margins in the medium to long term.

Investors who want to invest in Medtronic and seek diversified exposure can invest in the iShares U.S. Healthcare ETF (IYH). IYH has ~4% of its total holdings in Medtronic.

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