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Medtronic Aims to Build $40 Billion in Free Cash Flow: Here’s How

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Overview

Medtronic (MDT), a leading medical device company, is highly diversified across geographies and products. It has seen profitability and consistent growth over the years due to focusing on a customer-oriented approach despite its large size. Its major US medical device industry competitors include Johnson & Johnson (JNJ), Zimmer Biomet (ZBH), and Stryker (SYK). Investors seeking exposure to Medtronic can invest in the iShares Core S&P 500 ETF (IVV). IVV has a 0.69% exposure to MDT.

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Medtronic’s financial goals

Medtronic aims to generate ~$40 billion in free cash flow in the next five years. Approximately 50% of the company’s cash flow is expected to be returned to its shareholders. Around $10 billion is expected to be spent on M&A (mergers and acquisitions) and the reduction of debt on its balance sheet. The rest of the cash flow is to be kept as contingency funds.

Growth estimates and key growth drivers

Medtronic expects to register mid-single-digit revenue growth over the next few years, consistent with its track record. EPS (earnings per share) growth is expected to be in the double digits. To reach these targets, the company will be focusing on therapy innovation, globalization, and economic value strategies. These strategies have helped the company double its size and maintain stable and strong growth rates since 2011.

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