Thursday, March 22, 2012

Medtronic (MDT) 2012 Review

Medtronic Inc. (MDT) is the world’s largest manufacturer of implantable biomedical devices in the cardiac, neurological and vascular markets.

The company has grown profits and dividends 14-18% annually over the last ten years earning a return on equity in excess of 20%. Facilitating the continuation of this trend:

(1) MDT has strong R&D program and consequently has a deep product pipeline insuring strong organic growth. It expects to launch 20 new products in the next 12 months,

(2) the company is moving into emerging therapies through acquisitions--its latest acquisitions include Ardian, Invatec. Osteotech and ATS Medical,

(3) the company has strengthen its position in neurology and stints, two high growth markets,

(4) expansion into international markets,

(5) an aggressive cost reduction program,

(6) a stock buy back program.


(1) it is in a highly competitive industry,

(2) economic uncertainty can impact customer willingness to incur the cost of new procedures,

(3) subject to regulatory delays,

(4) the performance of its older product lines have been disappointing.

MDT is rated A++ by Value Line, carries a 33% debt to equity ratio and its stock yields 2.6%.

Statistical Summary

Stock Yield Dividend Growth Rate Payout Ratio # Increases Since 2002
MDT 2.6% 8% 28% 10
IND 1.5 7* 24 NA

Debt/Equity ROE EPS Down Since 2002 Net Margin Value Line Rating
MDT 33% 18% 0 24% A++
IND 36 20 NA 19 NA

*the majority of companies in MDT industry do not pay a dividend


Note: MDT stock made good initial progress off its March 2009 low, quickly surpassing the down trend off its August 2008 high (red line). However, by early 2010, MDT broke the up trend off the March 2009 low and has been unable to successfully challenge the November 2008 trading high (green line). Long term, MDT is in a trading range (straight blue lines). Intermediate term it is also in a trading range (purple lines). Short term it is in an up trend (brown line). The wiggly blue lines are Bollinger Bands. The Dividend Growth and Aggressive Growth Portfolios own a full position in MDT. The upper boundary of its Buy Value Range is $31; the lower boundary of its Sell Half Range is $51.

Steve Cook received his education in investments from Harvard, where he earned an MBA, New York University, where he did post graduate work in economics and financial analysis and the CFA Institute, where he earned the Chartered Financial Analysts designation in 1973. His 40 years of investment experience includes institutional portfolio management at Scudder, Stevens and Clark and Bear Stearns. Steve's goal at Strategic Stock Investments is to help other investors build wealth and benefit from the investing lessons he learned the hard way.