I didn’t look at Medtronic for a long time (read my last post) due to unfavorable transaction (inverse merger, potential tax payments etc.). Also valuation was rather demanding, however as it comes to business I found it an interesting alternative to JNJ. Since that time shares of Medtronic are steadily growing and valuation is even higher. Is business improvement justifying growth?

Reminding, Medtronic is the second-largest maker of medical devices operating in following segments: Cardiac & Vascular, Minimally Intensive Therapies, Restorative Therapies, Diabets. Company acquired Covidien – synergies are an important driver for the next years (but not the only one):

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Well, in my opinion it is a nice story to be played by long term investors. If only company delivers this growth I think there is further potential for share price, although currently valuation is getting very demanding:

P/E = 19

EV/EBITDA = 14

There is also another very interesting slide summing up why invest in Medtronic:

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With a market cap of around $120b FCF yield for the next 5 years is around 6% annually – not bad. What I really like in Medtronic is focus on generating long term performance and returning cash to shareholders. From dividend growth investor’s perspective it is extremely important. The key issue is that currently dividend yield is anything special (~2%), but the growth should be very high over the next years.

 

Summing up, I like Medtronic for expected growth but I hate for current all-time high share price and quite demanding valuation. I am patiently waiting for share price correction and at around $75 it might be a good buy opportunity (previously I underestimated company and I found nothing interesting at $75… mistakes happen).

 

Disclaimer MDT – no position