Should You Buy Medtronic Stock At $80?

Medtronic stock (NYSE: MDT) has declined 5% in a week, while it’s down 7% in a month, underperforming the broader markets with the S&P500 index rising 6% in a month. The recent fall can be attributed to the Q2FY23 results the company reported yesterday, with revenue falling below and earnings above our estimates. After its recent fall, we find MDT stock undervalued, as discussed below.

Medtronic’s revenue of $7.6 billion reflected a 3% y-o-y decline, marginally below our $7.7 billion estimate, primarily due to forex headwinds. Its Neuroscience segment saw low single-digit growth in sales, while all other segments saw a y-o-y decline. The company’s earnings of $1.30 on a per share and adjusted basis was down 2% y-o-y, given the lower sales, around 140 bps fall in adjusted operating margin, partly offset by a slight decline in total shares outstanding.

Given the forex headwinds, the company lowered its full-year sales growth forecast to be between 3.5% and 4%, compared to its prior guidance of 4% and 5%. It now expects the earnings to be in the range of $5.25 to $5.30 on a per share and adjusted basis, vs. its previous guided range of $5.53 and $5.65. We have updated our model to reflect the latest quarterly results. We forecast revenue of $31.5 billion and adjusted earnings of $5.32 per share. We estimate Medtronic’s Valuation to be around $106 per share, which is 36% above the current market price of $78. This represents a 20x P/E multiple based on its expected EPS of $5.32 in fiscal 2023, aligning with its last three-year average.

But What About The Near Term?

Now that MDT stock has seen a 7% fall in a month, will it continue its downward trajectory, or is a rise imminent? Going by historical performance, there is a higher chance of an increase in MDT stock over the next month. MDT stock has seen a move of -7% or more 179 times in the last ten years. 114 of those resulted in MDT stock rising over the subsequent one-month period (twenty-one trading days). This historical pattern reflects 114 out of 179, or a 64% chance of a rise in MDT stock over the next month. See our analysis on Medtronic Stock Chance of Rise for more details.

Calculation of ‘Event Probability‘ and ‘Chance of Rise‘ using the last ten years’ data

  • After moving -6.6% or more over five days, the stock rose on 55% of the occasions in the next five days.
  • After moving -2.8% or more over ten days, the stock rose in the next ten days on 59% of the occasions
  • After moving -7.1% or more over a twenty-one-day period, the stock rose on 64% of the occasions in the next twenty-one days.

This pattern suggests a higher chance of a rise in MDT stock over the next five, ten, and twenty-one days.

Medtronic (MDT) Return (Recent) Comparison With Peers

  • Five-Day Return: JNJ highest at 2.6%; MDT lowest at -6.6%
  • Ten-Day Return: ISRG highest at 9.2%; MDT lowest at -2.8%
  • Twenty-One Day Return: ISRG highest at 19.4%; MDT lowest at -7.1%

While MDT stock looks undervalued, the Covid-19 crisis and recent market volatility have created many pricing discontinuities, which can offer attractive trading opportunities. For example, you’ll be surprised at how counter-intuitive the stock valuation is for Becton Dickinson vs. Amerco.

What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

Returns Nov 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
 MDT Return -11% -25% 9%
 S&P 500 Return 3% -16% 79%
 Trefis Multi-Strategy Portfolio 3% -20% 217%

[1] Month-to-date and year-to-date as of 11/23/2022
[2] Cumulative total returns since the end of 2016

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