Medtronic PLC (MDT, Financial), a leading medical device company, has shown a daily gain of 2.81% and an Earnings Per Share (EPS) (EPS) of 2.82. Despite a 3-month loss of -5.49%, the question arises: Is Medtronic PLC's stock modestly undervalued? In this article, we delve into the valuation analysis to answer this question. We invite readers to explore our comprehensive analysis to better understand the intrinsic value of Medtronic PLC.
Company Overview
Medtronic PLC, one of the largest medical-device companies globally, develops and manufactures therapeutic medical devices for chronic diseases. Its product portfolio includes pacemakers, defibrillators, heart valves, stents, insulin pumps, spinal fixation devices, neurovascular products, advanced energy, and surgical tools. The company markets its products to healthcare institutions and physicians in the United States and overseas, with foreign sales accounting for roughly 50% of the company's total sales.
With a current stock price of $83.9 per share and a market cap of $111.70 billion, Medtronic PLC's valuation compared to its fair value (GF Value) of $108.76 presents an interesting discussion on the company's intrinsic value.
Understanding GF Value
The GF Value is a proprietary measure of a stock's intrinsic value, calculated based on historical trading multiples, a GuruFocus adjustment factor based on past returns and growth, and future business performance estimates. The GF Value Line provides an overview of the fair value at which the stock should ideally be traded.
Medtronic PLC's stock shows signs of being modestly undervalued according to GuruFocus Value calculation. This suggests that the long-term return of its stock is likely to be higher than its business growth.
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Financial Strength
Before investing in a company, it is crucial to evaluate its financial strength. Investing in companies with poor financial strength can lead to a higher risk of permanent loss. Medtronic PLC's cash-to-debt ratio of 0.33 is worse than 81.39% of 833 companies in the Medical Devices & Instruments industry. However, its overall financial strength is 6 out of 10, indicating fair financial health.
Profitability and Growth
Profitable companies, especially those with consistent profitability over the long term, are less risky investments. Medtronic PLC has been profitable 10 times over the past 10 years. The company's profitability is ranked 7 out of 10, indicating fair profitability.
However, growth is a crucial factor in a company's valuation. The 3-year average annual revenue growth rate of Medtronic PLC is 3.1%, which ranks worse than 61.13% of 723 companies in the Medical Devices & Instruments industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted cost of capital (WACC) is another way to evaluate its profitability. If the ROIC is higher than the WACC, the company is creating value for shareholders. Over the past 12 months, Medtronic PLC's ROIC was 5.45, while its WACC came in at 6.44.
Conclusion
In conclusion, Medtronic PLC (MDT, Financial) stock shows signs of being modestly undervalued. The company's financial condition is fair, and its profitability is fair. However, its growth ranks worse than 57.85% of 726 companies in the Medical Devices & Instruments industry. To learn more about Medtronic PLC stock, check out its 30-Year Financials here.
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