Medtronic Guides for Robust Free Cash Flow Conversion for 2020

Free cash flow target

During its 2018 Investor Day presentation, Medtronic (MDT) set a target of 80% FCF (free cash flow) conversion to be attained within the next two to three years. In fiscal 2019, the company’s FCF conversion was 83%, higher than the target as well as the average FCF conversion ratio reported by its peers.

In fiscal 2019, Medtronic reported FCF of $5.87 billion, a YoY (year-over-year) rise of 62.42%.

Medtronic Guides for Robust Free Cash Flow Conversion for 2020

Analysts expect Medtronic’s FCF to see YoY rises of 10.86% to $6.51 billion in fiscal 2020, 9.19% to $7.11 billion in fiscal 2021, and 5.91% to $7.53 billion in fiscal 2022.

Analysts also expect Medtronic’s FCF to see YoY rises of 30.33% to $1.84 billion in the first quarter, 16.82% to $1.12 billion in the second quarter, 40.22% to $1.77 billion in the third quarter, and 11.87% to $1.96 billion in the fourth quarter of fiscal 2020.

Dividend projections

On its fourth-quarter earnings conference call, Medtronic reiterated its commitment to return at least half of its annual free cash flow to shareholders. In fiscal 2019, the company returned 78% of its total FCF and 65% of its adjusted net income to shareholders, either as dividends or share buybacks.

Analysts expect Medtronic’s dividend per share to see YoY rises of 6.21% to $2.12 in fiscal 2020, 6.09% to $2.25 in fiscal 2021, and 6.32% to $2.40 in fiscal 2022.

Tuck-in acquisitions

According to its fourth-quarter earnings conference call, Medtronic’s mergers and acquisitions strategy is based on evaluating the earnings impact, strategic fit, and potential to earn returns greater than the cost of capital of the target as well as on the capability of its team to effectively integrate the target.

On December 19, 2018, Medtronic issued a press release announcing the completion of its acquisition of Mazor Robotics for a total consideration of $1.7 billion. The deal strengthened Medtronic’s position in the spinal surgery segment.

On January 24, 2019, the company issued a press release announcing its acquisition of EPIX Therapeutics and the subsequent expansion of its cardiac ablation portfolio.