Medtronic Plc (NYSE:MDT) February 25, 2015

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Implied Price
NEUTRAL
55.85 87.65
A Price as of Close Feb 23 79.25 USD
B CapitalCube Median Implied Price 82.37 USD * CapitalCube Price is over trading range * CapitalCube Price is below trading range
CapitalCube Estimate Range 77.08 - 87.65 USD NA
52 Week Range 55.85 - 79.45 USD
Fundamental Score
 0  100
A Fundamental Score (MDT) 53
B Fundamental Score(Peer Median) 53
Dividend Score
 0  100
A Dividend Quality Score (MDT) 92
B Dividend Quality Score (Peer Median) 12.5
Dividend Yield
0.49 2.99
A Dividend Yield (MDT) 1.51
B Dividend Yield (Peer Median) 1.54
Analysis
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Fundamental Analysis

Capital Investment Strategy The company is likely overinvesting in a business with only median returns.

The company is likely overinvesting in a business with only median returns.

Earnings Leverage Compared with its chosen peers, the company's annual revenues and earnings change at a slower rate, implying a lack of strategic focus and/or lack of execution success. Laggard

Laggard: Companies where the yearly Revenue and Earnings Growth are both below peer median, demonstrating both top and bottom line performance that is lagging the peers.
Compared with its chosen peers, the company's annual revenues and earnings change at a slower rate, implying a lack of strategic focus and/or lack of execution success.

Leverage & Liquidity MDT-US has additional debt capacity.

MDT-US has additional debt capacity.

Relative Valuation Medtronic Plc's current Price/Book of 4.01 is about median in its peer group.

Medtronic Plc's current Price/Book of 4.01 is about median in its peer group.

Valuation Drivers The market expects MDT-US to grow at about the same rate as the peers and to maintain the median returns it currently generates.

The market expects MDT-US to grow at about the same rate as the peers and to maintain the median returns it currently generates.

Drivers of Margin The company's relatively high pre-tax margin suggests tight control on operating costs versus peers.

The company's relatively high pre-tax margin suggests tight control on operating costs versus peers.

Growth Expectations While MDT-US's revenues growth has been below the peer median in the last few years, the market still gives the stock a PE ratio that is around peer median and seems to see the company as a long-term strategic bet.

While MDT-US's revenues growth has been below the peer median in the last few years, the market still gives the stock a PE ratio that is around peer median and seems to see the company as a long-term strategic bet.

Operations Diagnostic MDT-US has relatively high profit margins while operating with median asset turns.

MDT-US has relatively high profit margins while operating with median asset turns.

Sustainability of Returns MDT-US's return on assets currently and over the past five years is around the peer median and suggest that it does not have any particular operational advantages versus peers.

MDT-US's return on assets currently and over the past five years is around the peer median and suggest that it does not have any particular operational advantages versus peers.

Likely Corporate Actions

Dividend Action

Though relatively good current margins and cash flow levels along with a high dividend quality and a strong cash cushion (for its dividend) suggest that MDT-US is in a position to increase its dividend, the combination of interest coverage and relative debt to market equity raise possible questions about the use of cash to increase dividends.

Equity Action

The company's current share price is not sufficiently lower than its 52-week high (currently about 0.25% below) and does not justify a share buyback as the best use of cash at this time.

M&A Action Acquirer

Acquirer: The company could potentially acquire other companies because of its current size, valuation and capacity to absorb acquisitions. For more information, please refer to the Corporate Actions report.
MDT-US is one of the larger companies in this peer group and thus difficult to acquire.

Dividend Quality

Dividend Coverage Strong

The ending cash balance, with a dividend coverage of 12.49x, provides a substantial cushion in case of a significant reduction of cash flows in the future.

Dividend Quality High Quality

High Quality: Dividends that are fully covered from operating and investing cash flow, net of any cash outflow from debt repayments and net of a decrease in deposits (for banks) are considered to be high quality. For more information, please refer to the Corporate Actions report.
Over the last twelve months (prior to October 30, 2014), MDT-US paid a high quality dividend, which represents a yield of 1.48% at the current price.

Dividend Quality Trend

Dividend quality trend has not been consistent over the last five years. Dividends were paid during each of these years -- of these 4 were high quality and 1 was medium quality.

Accounting Red Flags

Accounting Quality

MDT-US's strong relative net income margin for the last twelve months combined with a level of accruals that is around peer median suggest that the reported net income is supported by a reasonable level of accruals.

Management of Reserves

The company's accrual levels over the last twelve months are positive but around the peer median suggesting the company is recording a proper level of reserves relative to its peers.

Material Categories

Excluding the effects of change in revenue, the accounting categories causing the most impact on the movement of net income from the prior period to the current period are Business Combination Reserves, R&D and Pension Underfunded Amounts.
Characteristics
Key Valuation Items

Price to Book (P/B)

4.01

Price to Earnings (P/E)

26.82

Price to Sales

4.49

Price / EBITDA

13.16

Price to Assets

2.01

Price / FCF

20.79

EV / EBITDA

10.87

EV / FCF

17.16

Dividend Yield

1.51

PEG Ratio

Profitability

Gross Margin

77.25

EBIT Margin

29.22

Net Margin

16.75

FCF Margin

21.61

Operating Margin

29.22

Pre-Tax Margin

20.39

ROE

15.24

ROIC

8.93

ROA

7.73
Efficiency

Debt / Equity

70.37

Debt / Market

20.98

Debt / Book

41.30

Debt / EV

21.24

Coverage Ratio

29.06

Interest Coverage

12.81

Cash Days

298.71

Working Cap. Days

300.88

Receivable Days

79.25

Payable Days

14.11

Inventory Days

38.98

Sales / Assets

0.46
Growth

Earnings Growth YOY

-23.69

Revenue Growth YOY

3.60

Oper. CF Growth YOY

-12.08

EPS Growth YOY

-22.73

FCF Growth YOY

-12.58
Price History

Peers

FA Score

DQ Score

close

52 week range

79.25

55.85

79.45

USD

68.55

54.80

71.90

USD

16.31

11.10

16.71

USD

134.25

66.86

137.58

USD

95.60

75.78

98.24

USD

100.18

90.66

109.49

USD

121.31

90.48

121.69

USD

35.44

31.55

36.35

USD

68.64

65.94

77.31

USD

176.05

132.81

180.35

USD

Company Profile

Medtronic Plc Formerly known as Medtronic, Inc. The Group's principal activities are manufacturing, developing and marketing medical technology and providing device-based medical therapies. It operates in eight segments: Cardiac Rhythm Disease Management (CRDM), Spinal, CardioVascular, Neuromodulation, Diabetes, Surgical Technologies, Physio-Control. It provides lifelong solutions for people with chronic diseases. It also offers therapeutic and diagnostic devices used for the treatment of diabetes, neurological, gastroenterological, urological, and movement disorders, spinal and neurosurgery, neurodegenerative disorders and ear, nose and throat (ENT) surgery. It provides external and manual defibrillators. The Group operates in the United States, Europe, the Asia Pacific and other foreign countries.

Closing Stock Price

USD 79.25

As of Date

February 23, 2015

One Year Performance

38.743%

One Month Performance

2.98896%

Industry Group

Medical Specialties

52 wk. Range

USD 55.85 - USD 79.45

Market Cap (Millions)

USD 78007.1

Total Shares Outstanding

979.516
Latest Filing Dates

Annual

April 29, 2014

Semi Annual

N/A

Quarterly

October 30, 2014

Next Release Date

May 18, 2015

Filing Currency

USD

Listed Exchange

NYSE
Peers


Closing Stock Price

USD 79.25

As of Date

February 23, 2015

One Year Performance

38.74%

One Month Performance

2.99%

Industry Group

Medical Specialties

52 wk. Range

USD 55.85 - USD 79.45

Market Cap (Millions)

USD 78,007.1

Total Shares Outstanding (Millions)

979.52
Latest Filing Dates

Annual

April 29, 2014

Semi Annual

N/A

Quarterly

October 30, 2014

Next Release Date

May 18, 2015

Filing Currency

USD

Listed Exchange

NYSE
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