In my last post I was complaining a little bit about high valuation of Medtronic and now I see that share price is down from around $88 to around $75, which is a pretty nice discount of around 15%. Let’s have a closer look on recent events and valuation.

Well, last results were below expectations, which caused a decline of share price. The main issue are lower than expected revenues.

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Well, maybe I am quite naïve, but management claims that issues are mainly temporary. We will see. What I really like is return of capital to shareholders. In Q2 company returned $593M in dividends and $985M in net share repurchases, which is in total $1.58b. With current market cap of $104b it gives us around 1.5% return to shareholders yield quarterly. Decent result.

Company lowered outlook for whole year EPS to $4.55 – $4.60 vs $4.60 – $4.70. It is still not a big change comparing to share price decline.

Current valuation:

P/E = 16.3

EV/EBITDA ~12

Not bad, especially taking into account that whole generated free cash flow is transferred to shareholders (annually around 6% return in dividends + buybacks).

Strong USD is quite a headwind for company (and also for me as I need to buy USD to make another purchase).

Remember also about long term expected growth:

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This might be driving share price up and up over the long term.

 

Summing up, share price dropped a little bit to $75. Valuation is getting attractive and in my opinion it is worth to have a close look on MDT – growth in the future should be quite strong.

 

Disclaimer MDT – no position