What Is Medtronic’s Valuation ahead of 4Q16 Results?



Valuation multiples

After the release of its fiscal 3Q16 earnings results on March 1, 2016, Medtronic (MDT) traded at a forward PE (price-to-earnings) multiple in the range of 16x–17.2x. As of May 26, 2016, Medtronic was trading at a forward PE multiple of 17.2x, lower than its peer Becton Dickinson (BDX), Boston Scientific (BSX), and Stryker (SYK).

Investors interested in investing in Medtronic can consider the Guggenheim S&P 500 Equal Weight Health Care ETF (RYH), which provides diversified exposure to Medtronic. MDT accounts for 1.8% of RHY’s total holdings.


The above graph compares the forward PE multiples of Medtronic and its peers. The forward PE ratio is a measure of a company’s growth. It’s calculated by dividing a company’s current stock price by its 12-month earnings estimate.

Due to Medtronic’s strong fundamentals, high free cash flows, attractive product portfolio, and strong business model, the company’s valuation multiple has witnessed a gradual rise since its 3Q16 earnings release despite missing revenue estimates.

To learn more about Medtronic’s valuation and growth drivers, you can read Medtronic’s Valuations and Growth Story: What Can Investors Expect?

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BDX’s share price movement

Medtronic’s stock was trading at $81.1 as of May 25, 2016. It has a 50-day moving average of $79.17 and a 200-day moving average of $76.74. On May 16, 2016, Medtronic was trading at a 52-week high of $81.9. The stock traded at a 52-week low of $55.5 on August 24, 2015.

The company’s share price fell by ~4% after the release of its 3Q16 earnings on March 1, 2016. The decline in stock price was triggered by lower-than-expected revenue reported for the quarter. Since then, its price has risen by ~9.3%. Medtronic’s stock has returned ~5.9% over the last 12 months. The company’s stock outperformed the market represented by the S&P 500 Index. Medtronic’s YTD returns stand at ~5.4%, whereas the index has returned approximately 2.3% in the same period.


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