One of Wall Street's biggest winners of the day is Medtronic, a biotechnology company whose shares have climbed 4.0% to a price of $83.05 -- 13.09% below its average analyst target price of $95.56.
The average analyst rating for the stock is buy. MDT may have outstripped the S&P 500 index by 4.0% so far today, but it has lagged behind the index by 31.8% over the last year, returning -8.3%.
Medtronic plc develops, manufactures, and sells device-based medical therapies to healthcare systems, physicians, clinicians, and patients worldwide. The company is categorized within the healthcare sector. The catalysts that drive valuations in this sector are complex. From demographics, regulations, scientific breakthroughs, to the emergence of new diseases, healthcare companies see their prices swing on the basis of a variety of factors.
Medtronic's trailing 12 month P/E ratio is 25.4, based on its trailing EPS of $3.27. The company has a forward P/E ratio of 14.2 according to its forward EPS of $5.85 -- which is an estimate of what its earnings will look like in the next quarter.
As of the third quarter of 2024, the average Price to Earnings (P/E) ratio for US health care companies is 26.07, and the S&P 500 has an average of 29.3. The P/E ratio consists in the stock's share price divided by its earnings per share (EPS), representing how much investors are willing to spend for each dollar of the company's earnings. Earnings are the company's revenues minus the cost of goods sold, overhead, and taxes.
To gauge the health of Medtronic's underlying business, let's look at gross profit margins, which are the company's revenue minus the cost of goods only. Analyzing gross profit margins gives us a good picture of the company's pure profit potential and pricing power in its market, unclouded by other factors. As such, it can provide insights into the company's competitive advantages -- or lack thereof.
MDT's average gross profit margins over the last four years are 66.8%, which indicate it has a potential competitive advantage in its market. These margins are declining based on their four year average gross profit growth rate of -1.0%.
Medtronic's financial viability can also be assessed through a review of its free cash flow trends. Free cash flow refers to the company's operating cash flows minus its capital expenditures, which are expenses related to the maintenance of fixed assets such as land, infrastructure, and equipment. Over the last four years, the trends have been as follows:
| Date Reported | Cash Flow from Operations ($ k) | Capital expenditures ($ k) | Free Cash Flow ($ k) | YoY Growth (%) |
|---|---|---|---|---|
| 2023 | 6,787,000 | 1,587,000 | 5,200,000 | 13.54 |
| 2022 | 6,039,000 | 1,459,000 | 4,580,000 | -23.39 |
| 2021 | 7,346,000 | 1,368,000 | 5,978,000 | 22.37 |
| 2020 | 6,240,000 | 1,355,000 | 4,885,000 | -18.87 |
| 2019 | 7,234,000 | 1,213,000 | 6,021,000 | 2.52 |
| 2018 | 7,007,000 | 1,134,000 | 5,873,000 |
- Average free cash flow: $5.42 Billion
- Average free cash flown growth rate: -2.6 %
- Coefficient of variability (lower numbers indicating more stability): 0.0 %
Free cash flow represents the amount of money that is available for reinvesting in the business, or for paying out to investors in the form of a dividend. With a positive cash flow as of the last fiscal year, MDT is in a position to do either -- which can encourage more investors to place their capital in the company.
Value investors often analyze stocks through the lens of its Price to Book (P/B) Ratio (market value divided by book value). The book value refers to the present value of the company if the company were to sell off all of its assets and pay all of its debts today - a number whose value may differ significantly depending on the accounting method.
Medtronic has a P/B ratio of 2.17. This indicates that the market value of the company exceeds its book value by a factor of more than 2, but is still below the average P/B ratio of the Health Care sector, which stood at 3.53 as of the third quarter of 2024.
Medtronic is by most measures fairly valued because it has a Very low P/E ratio, a lower P/B ratio than its sector average, and positive cash flows with a flat trend. The stock has poor growth indicators because it has a an inflated PEG ratio and weak operating margins with a stable trend. We hope you enjoyed this overview of MDT's fundamentals.
