Medtronic: Still A Buy Before Earnings

Investment Thesis - Medtronic (MDT) is viewed as a low-volatility stock with solid dividend growth, maintaining a "Buy" rating despite a modest total return of 1.9% since mid-February [3] - The upcoming fiscal Q1 earnings report is anticipated on August 20, with expectations of revenue growth of approximately 2.5% year-over-year to $7.90 billion and flat adjusted EPS at $1.20 [5] Recent Earnings Performance - In the latest quarterly earnings released on May 23, MDT surpassed revenue and adjusted EPS consensus estimates, although it missed on GAAP EPS, with revenue showing a slight 0.5% year-over-year growth [4] Analyst Sentiment - Wall Street analysts have a bearish sentiment regarding the upcoming earnings, with 17 downgrade EPS revisions in the last 90 days [5] - Despite this, MDT has a strong earnings surprise record, with positive surprises in previous quarters [6] Dividend and Growth Prospects - MDT declared a quarterly dividend of $0.70, consistent with previous dividends, and received an upgrade from "Sell" to "Hold" by UBS analysts, driven by optimism in the diabetes segment [6] - The diabetes care devices industry is projected to grow at a 12.2% CAGR from 2024 to 2029, providing a favorable environment for MDT's diabetes business [6] FDA Approvals - MDT received FDA approval for its Simplera continuous glucose monitor and for asleep deep brain stimulation surgery, marking significant advancements in its product offerings [7] Valuation Metrics - MDT's share price increased by 3.7% over the last twelve months, with a 52-week range between $69 and $89, lagging behind the broader U.S. market and healthcare sector [8] - Valuation ratios are generally lower than MDT's historical averages, with a low "D" valuation grade assigned by Seeking Alpha Quant due to a high forward PEG ratio [8] Financial Projections - The dividend discount model (DDM) analysis suggests a fair price of $83.5 per share, indicating that MDT is approximately fairly valued [11] - A discounted cash flow (DCF) simulation estimates the business's fair value at around $118 billion, which is 10% higher than the current market cap, suggesting MDT is attractively valued based on future cash flows [13] Competitive Landscape - MDT faces fierce competition in the healthcare equipment industry, with competitors like Boston Scientific, Stryker, and Intuitive Surgical, which may impact investor perception [17] - Despite a larger revenue base, MDT's modest revenue growth compared to peers may affect its market valuation [20][22]