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Why Argus Upgraded MDT Stock from ‘Hold’ to ‘Buy’ on December 12

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Updated

Recommendation revision by Argus Research

On December 12, 2017, Argus Research analyst John Eade upgraded Medtronic (MDT) stock from a “hold” to a “buy.” He has a price target of $95.00 per share on the stock.

On the day, MDT stock registered an ~1.0% increase. The Vanguard Health Care ETF (VUG) declined by 0.02% on the same day. VUG holds ~1.3% of its total portfolio in MDT stock.

Rationale behind the rating upgrade

Eade believes Medtronic is set to accelerate its growth going forward after a period of recent weak performance. Cost synergies from the company’s Covidien acquisition are expected to boost its operating margins.

Moreover, the tuck-in acquisitions undertaken by Medtronic in fiscal 2017 are expected to be integrated into the company’s existing businesses and yield synergies going forward. Recently, Medtronic strengthened its balance sheet by cutting down its debt via some asset sale proceeds.

Its management is focused on creating value for shareholders through consistent returns including dividend payments. According to Argus, Medtronic is estimated to grow 10.0% over the next two years.

Argus Research’s view on MDT’s valuation and stock price potential

Argus Research believes MDT stock is trading at a discount to its industry peers. However, it has assumed valuation multiples commensurate with industry average while estimating the 12-month target price of $95.00 per share for MDT stock. Thus, the research firm expects to see significant stock price growth in MDT stock going forward.

According to Eade, “We think the MDT shares are attractively valued at current prices near $81. The shares are trading above the midpoint of the 52-week range of $69-$89.”

Eade added, “From a technical standpoint, the stock appears to be in a bullish pattern of higher highs and higher lows that began in late September.”

Argus Research’s recommendations for MDT’s competitors

On December 20, 2017, Argus Research had a “buy” rating on Becton, Dickinson & Co. (BDX) with a target price of $235.00 per share. Stryker (SYK) has a “buy” recommendation with a target price of $160.00 per share from Argus Research. For Johnson & Johnson (JNJ), the research firm has a “buy” rating and a target price of $165.00 per share.

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