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Is Medtronic (MDT) A Suitable Value Pick Right Now?
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Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?
One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put Medtronic PLC (MDT - Free Report) stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:
PE Ratio
A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.
On this front, Medtronic has a trailing twelve months PE ratio of 19.30. This level compares favorably with the market at large, as the PE ratio for the S&P 500 comes in at about 20.34.
If we focus on the long-term trend of the stock the current level puts Medtronic’s current PE near its highs, with the number having been on a general uptrend over the past few months in particular.
Further, the stock’s PE compares favorably with the Zacks classified Medical - Products’ trailing twelve months PE ratio, which stands at 22.62. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers. In fact, Medtronic has historically always traded at a PE less than that of the industry’s since the end of 2013.
We should also point out that Medtronic has a forward PE ratio (price relative to this year’s earnings) of just 18.04, so it is fair to say that a slightly more value-oriented path may be ahead for Medtronic stock in the near term too.
P/S Ratio
Another key metric to note is the Price/Sales ratio. This approach compares a given stock’s price to its total sales, where a lower reading is generally considered better. Some people like this metric more than other value-focused ones because it looks at sales, something that is far harder to manipulate with accounting tricks than earnings.
Right now, Medtronic has a P/S ratio of about 4.13. This is a bit higher than the S&P 500 average, which comes in at 3.94 right now.
If anything, Medtronic is towards the higher end of its range in the time period from a P/S metric, which suggests that the company’s stock price has already appreciated to some degree, relative to its sales.
P/CF Ratio
An often overlooked ratio that can still be a great indicator of value is the price/cash flow metric. This ratio doesn’t take amortization and depreciation into account, so can give a more accurate picture of the financial health in a business. This is a preferred metric to some valuation investors because cash flows are (a) generally less prone to manipulation by the company’s management and (b) are less affected by variation in accounting policies between different companies.
The ratio is generally applied to find out whether a company’s stock is overpriced or underpriced with reference to its cash flows generation potential compared with its competitors. However, it is not commonly used for cross-industry comparison, as the average price to cash flow ratio varies from industry to industry.
In this case, Medtronic’s P/CF ratio of 17.62 is lower than the Zacks classified Medical – Products industry average of 20.21, which indicates that the stock is somewhat undervalued in this respect.
Broad Value Outlook
In aggregate, Medtronic currently has a Zacks Value Style Score of ‘B’, putting it into the top 40% of all stocks we cover from this look. This makes Medtronic an apt choice for value investors, and some of its other key metrics make this pretty clear too.
For example, its P/B ratio (used to compare a stock's market value to its book value) stands at 2.42, lower than the industry average of 3.80. Clearly, MDT is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though Medtronic might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth grade of ‘D’ and a Momentum score of ‘F’. This gives MDT a Zacks VGM score—or its overarching fundamental grade—of ‘D’. (You can read more about the Zacks Style Scores here >>)
Meanwhile, the company’s recent earnings estimates have been trending downwards lately. The current quarter has seen no estimate go higher in the past thirty days compared to five lower, while the full year estimate has seen two upward revisions and seven downward revisions in the same time period.
This has had a modest impact on the consensus estimate though as the current quarter consensus estimate has declined 4.4% in the past month, while the full year estimate has inched lower by 0.4%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
This negative trend is why the stock has just a Zacks Rank #3 (Hold) despite somewhat strong value metrics and why we are looking for in-line performance from the company in the near term.
Bottom Line
Medtronic is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Although boasting of a strong industry rank (Top 42% out of more than 250 industries), the company’s Zacks Rank #3 somewhat dims the sparkle.
Headwinds like unfavorable currency movement and global economic uncertainties continue to adversely affect Medtronic. Also, several legal and regulatory issues are intimidating in the short term.
Nevertheless, the Covidien integration synergy continues meaningfully accelerating all three fundamental growth strategies of Medtronic – therapy innovation, globalization, and economic value. The company is also focused on product innovation and geographical diversification of business, which bode well for the long term.
So, value investors might want to wait for estimates and analyst sentiment to turn favorable in this name first, but once that happen, this stock could be a compelling pick.
Looking for Ideas with Even Greater Upside?
Today's investment ideas are short-term, directly based on our proven 1 to 3 month indicator. In addition, I invite you to consider our long-term opportunities. These rare trades look to start fast with strong Zacks Ranks, but carry through with double and triple-digit profit potential. Starting now, you can look inside our home run, value, and stocks under $10 portfolios, plus more.
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Is Medtronic (MDT) A Suitable Value Pick Right Now?
Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?
One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put Medtronic PLC (MDT - Free Report) stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:
PE Ratio
A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.
On this front, Medtronic has a trailing twelve months PE ratio of 19.30. This level compares favorably with the market at large, as the PE ratio for the S&P 500 comes in at about 20.34.
If we focus on the long-term trend of the stock the current level puts Medtronic’s current PE near its highs, with the number having been on a general uptrend over the past few months in particular.
Further, the stock’s PE compares favorably with the Zacks classified Medical - Products’ trailing twelve months PE ratio, which stands at 22.62. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers. In fact, Medtronic has historically always traded at a PE less than that of the industry’s since the end of 2013.
We should also point out that Medtronic has a forward PE ratio (price relative to this year’s earnings) of just 18.04, so it is fair to say that a slightly more value-oriented path may be ahead for Medtronic stock in the near term too.
P/S Ratio
Another key metric to note is the Price/Sales ratio. This approach compares a given stock’s price to its total sales, where a lower reading is generally considered better. Some people like this metric more than other value-focused ones because it looks at sales, something that is far harder to manipulate with accounting tricks than earnings.
Right now, Medtronic has a P/S ratio of about 4.13. This is a bit higher than the S&P 500 average, which comes in at 3.94 right now.
If anything, Medtronic is towards the higher end of its range in the time period from a P/S metric, which suggests that the company’s stock price has already appreciated to some degree, relative to its sales.
P/CF Ratio
An often overlooked ratio that can still be a great indicator of value is the price/cash flow metric. This ratio doesn’t take amortization and depreciation into account, so can give a more accurate picture of the financial health in a business. This is a preferred metric to some valuation investors because cash flows are (a) generally less prone to manipulation by the company’s management and (b) are less affected by variation in accounting policies between different companies.
The ratio is generally applied to find out whether a company’s stock is overpriced or underpriced with reference to its cash flows generation potential compared with its competitors. However, it is not commonly used for cross-industry comparison, as the average price to cash flow ratio varies from industry to industry.
In this case, Medtronic’s P/CF ratio of 17.62 is lower than the Zacks classified Medical – Products industry average of 20.21, which indicates that the stock is somewhat undervalued in this respect.
Broad Value Outlook
In aggregate, Medtronic currently has a Zacks Value Style Score of ‘B’, putting it into the top 40% of all stocks we cover from this look. This makes Medtronic an apt choice for value investors, and some of its other key metrics make this pretty clear too.
For example, its P/B ratio (used to compare a stock's market value to its book value) stands at 2.42, lower than the industry average of 3.80. Clearly, MDT is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though Medtronic might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth grade of ‘D’ and a Momentum score of ‘F’. This gives MDT a Zacks VGM score—or its overarching fundamental grade—of ‘D’. (You can read more about the Zacks Style Scores here >>)
Meanwhile, the company’s recent earnings estimates have been trending downwards lately. The current quarter has seen no estimate go higher in the past thirty days compared to five lower, while the full year estimate has seen two upward revisions and seven downward revisions in the same time period.
This has had a modest impact on the consensus estimate though as the current quarter consensus estimate has declined 4.4% in the past month, while the full year estimate has inched lower by 0.4%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Medtronic PLC Price and Consensus
Medtronic PLC Price and Consensus | Medtronic PLC Quote
This negative trend is why the stock has just a Zacks Rank #3 (Hold) despite somewhat strong value metrics and why we are looking for in-line performance from the company in the near term.
Bottom Line
Medtronic is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Although boasting of a strong industry rank (Top 42% out of more than 250 industries), the company’s Zacks Rank #3 somewhat dims the sparkle.
Headwinds like unfavorable currency movement and global economic uncertainties continue to adversely affect Medtronic. Also, several legal and regulatory issues are intimidating in the short term.
Nevertheless, the Covidien integration synergy continues meaningfully accelerating all three fundamental growth strategies of Medtronic – therapy innovation, globalization, and economic value. The company is also focused on product innovation and geographical diversification of business, which bode well for the long term.
So, value investors might want to wait for estimates and analyst sentiment to turn favorable in this name first, but once that happen, this stock could be a compelling pick.
Looking for Ideas with Even Greater Upside?
Today's investment ideas are short-term, directly based on our proven 1 to 3 month indicator. In addition, I invite you to consider our long-term opportunities. These rare trades look to start fast with strong Zacks Ranks, but carry through with double and triple-digit profit potential. Starting now, you can look inside our home run, value, and stocks under $10 portfolios, plus more.
Click here for a peek at this private information >>