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Monday, 17 June 2013
Medtronic (MDT)

Hello Friends!  Thanks so much for stopping by and visiting my blog, Stock Picks Bob's Advice!  As always, please remember that I am an amateur investor, so please remember to consult with your professional investment advisors prior to making any investment decisions based on information on this website.

One of my recent purchases for my Covestor Healthcare Model is Medtronic, Inc. (MDT).  I purchased shares May 1, 2013, at an effective cost of $47.00.  Medtronic closed at $53.51, up $.59 or 1.11% on the day (June 17, 2013).  This is already a strong performer in my portfolio. 

Being located in the midwest, I am always proud of America's most innovative companies originating in the 'heartland'.  Medtronic is headquartered just north of Minneapolis in the city of Fridley.

Medtronic has a classic history of American innovation.  As the Medtornic website relates:

"Today, we are the world's largest medical technology company, but we come from humble beginnings. Medtronic was founded in 1949 as a medical equipment repair shop by Earl Bakken and his brother-in-law, Palmer Hermundslie.

Did these two men set out to change medical technology and the lives of millions of people? No. But they did have a deep moral purpose and an inner drive to use their scientific knowledge and entrepreneurial skills to help others."

According to the Yahoo "Profile" on Medtronic, the company

"...provides products to diagnose, treat, and manage heart rhythm disorders and heart failure, including implantable cardiac pacemakers, implantable cardioverter defibrillators, cardiac resynchronization therapy devices, arctic front cardiac cryoablation catheters, arctic front cardiac cryoablation catheters, and patient management tools. The company also offers cardio vascular products, such as percutaneous coronary intervention device that is used to treat patients with coronary artery disease; renal denervation for the treatment of chronic uncontrolled hypertension; endovascular stent grafts to treat abdomen and thoracic regions of the aorta; peripheral vascular intervention that encompasses various procedures to treat patients with peripheral vascular disease; surgical valve replacement and repair products for damaged or diseased heart valves; transcatheter heart valves; a line of blood-handling products used in arrested heart surgeries; positioning and stabilization technologies that assist physicians performing beating heart surgery; and surgical ablation system, which allows cardiac surgeons to create ablation lines during cardiac surgery. In addition, it provides medical devices and implants that are used in the treatment of the spine and musculoskeletal system comprising thoracolumbar, cervical, and biologics products; neurostimulators for chronic pain, implantable drug delivery systems, and deep brain stimulation systems, as well as urology, fecal, and gastroenterology devices; and integrated diabetes management solutions. Further, the company offers products and therapies to treat diseases and conditions of the ear, nose, and throat, as well as certain neurological disorders; and image-guided surgery and intra-operative imaging systems."

Medtronic (MDT) has been a favorite on my blog.   I first wrote up Medtronic on November 13, 2003 (excuse the typo on the entry that says incorrectly 2002).   I then revisited this stock pick on November 29, 2009.  One has to be impressed with the wide breadth of medical technology products coming out of this company and the continued innovation.  In fact, in 2010 Medtronic was recognized by the Massachusetts Institute of Technology Review as one of the 50 most innovative companies in the world.

What really attracted me to the company last month was the strong technical strength of the stock as it began to clear past stock price 'highs' set in 2007 and 2008.  As this StockCharts.com 'point & figure' chart shows, the company has had a superb performance since bottoming out at about $21 in March, 2009, and has moved strongly ahead, at first with a sharp correction in May, 2011.

To be sure, Medtronic (MDT) has found itself embroiled in controversy over the years with the Medtronic Infuse scandal being typical as accusations of payments from Medtronic to investigators publishing review articles.  In May, 2012, the Department of Justice closed their investigation of Medtronic without finding any wrongdoing in regards to the Infuse Bone Graft product.  For the most part this 'overhang' of litigation that has suppressed the stock price, from my perspective, has been removed.  However, trial attorneys are still seeking plaintiffs for continued litigation against the company.  In any case, the above chart suggests that investors have breathed a collective sigh of relief with the Justice Department decision and the company stock appears to be continuing to appreciate to multi-year highs.

Part of the continued bump in the stock price has been the company's latest financial results.  On May 21st Medtronic (MDT) reported 4th quarter results. Net income came in at $969 million, or $.96/share ahead of last year's $991 million or $.94/share.  Sales also grew to $4.46 billion against last year's $4.3 billion.  Adjusted earnings were $1.10/share ahead of analysts' estimated $1.03 in earnings.  Sales also exceeded expectations of $4.38 billion.  The company raised guidance for revenue to $17.1 billion to $17.3 billion in 2014 ahead of FactSet estimates of $16.9 billion. 

Reviewing the Morningstar.com financials on MDT, we can see that Medtronic is continuing to grow its revenue with $13.5 billion reported in 2008 increasing to $16.2 billion in 2012 and $16.4 billion in the trailing twelve months (TTM).  More recently the rate of revenue growth has decreased from rates of growth between 2008-2010.

Diluted earnings per share have grown from $1.95/share in 2008 to $3.41 in 2012 and a slight dip to $3.38 in the TTM.  Outstanding shares have steadily decreased from 1.14 billion in 2008 to 1.03 billion in the TTM.  Medtronic continues to actively buy back its own shares supporting some of the 'per share' results noted. 

In terms of the balance sheet, Morningstar reports Medtronic with current assets of $9.5 billion, and current liabilities of $5.9 billion yielding a Current Ratio of 1.61.  Medtronic has nicely grown free cash flow from $2.88 billion in 2008 to $3.97 billion in 2012 and $4.28 billion in the TTM.

Looking at some Key Statistics on Medtronic from Yahoo, we can see that this is a large cap stock with a market capitalization of $54.37 billion.   The trailing P/E is a moderate 15.88 with a forward P/E (fye Apr 26, 2015) working out to 12.99.  The PEG ratio, however, remains rich at 2.03 with only a modest growth in earnings expected. 

Yahoo reports 1.02 billion shares outstanding with 1.01 billion that float.  As of May 31, 2013, there were 10.64 million shares out short yielding a short interest ratio of only 2.0.  (Under my own arbitrary 3 day rule for significance).  The company pays a nice dividend of $1.04 yielding 2%.  The payout ratio is a moderate 31% suggesting ample room for further dividend boosts.  The last time the stock was split was back in September, 1999, when shareholders got a 100% stock dividend for a 2:1 stock split.

To summarize, Medtronic has over the past several years been embroiled in some controversy regarding research results and payments to investigators.  The Justice Department has found no evidence of significant wrongdoing and has closed its case.  The company meanwhile has continued to generate very large amounts of cash, using it to pay an increasing stock dividend and purchase back its own shares.

The company produces many innovative products spanning multiple fields of medicine from Orthopedics, to Cardiology to Nephrology.  It is unnecessary to remind anyone that as our population ages and as more people in this country through the Affordable Care Act ('Obamacare") and overseas through growing middle class populations in nations like India and China find their access to healthcare improving, that purchases of medical devices by practitioners is likely to continue to grow.

Finally, after years of essentially going 'nowhere' the stock appears to be breaking out to multi-year highs and demonstrates strong price momentum.  I liked this stock enough to buy some shares and thus far it appears to be a good decision.  Like all of my purchases, I always reserve the right to sell any position on either technical or fundamental weakness, a discipline I believe is essential to success in investing.

Thank you so much for stopping by and visiting this website once again.  If you have any comments or questions, please feel free to leave them right here.

Yours in investing,

 

Bob 


Posted by bobsadviceforstocks at 10:44 PM CDT | Post Comment | Permalink
Updated: Monday, 17 June 2013 10:47 PM CDT

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