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Valuation Metrics: Medtronic versus Peers

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Peer comparison

On June 29, 2016, Medtronic (MDT) was trading at a forward PE (price-to-earnings) multiple of ~18.3x, compared with the industry average of ~21x. The company is trading at a lower multiple than peers Stryker (SYK), Becton, Dickinson and Company (BDX), and Boston Scientific (BSX).

The forward price-to-earnings ratio is a measure that compares the stock price of a particular company with its estimated earnings per share for the next one year. Investors can invest in the iShares Core S&P 500 ETF (IVV). Medtronic accounts for 0.69% of IVV’s total holdings.

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Company fundamentals

On June 29, 2016, Medtronic’s share price was $85.40, representing a rise of ~6.2% since the company’s 4Q16 earnings release on May 31, 2016. The stock traded at a 52-week high of $86.30 on June 13, 2016, and at a 52-week low of $55.50 on August 24, 2015.

Medtronic is a leading medical device company in the United States. It has a well-diversified product portfolio and a presence across geographies. The company has a strong balance sheet and provides value to shareholders through consistent dividend payouts and a share buyback program. Medtronic is a dividend aristocrat, part of the S&P 500, and has been paying increasing dividends to its shareholders consistently for more than 25 years. The company has a strong inorganic growth strategy, along with significant expenses incurred on innovation through internal research and development. The acquisition of Covidien has further strengthened Medtronic’s market position through the expansion of its product portfolio and access to a complementary product portfolio. The company’s strong fundamentals, revenue growth, and cash flow position it as an excellent long-term growth investment opportunity.

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