Does Medtronic’s Current P/E Ratio Offer Any Opportunity To Investors?

by Trefis Team
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The market currently estimates Medtronic’s (NYSE:MDT) revenue growth to be around 3%, whereas the S&P 500’s expected revenue growth is about 7% in 2020. As we discuss below, Medtronic’s margins have been consistently higher than the S&P 500. If you think that Medtronic can grow revenues by more than 3% in 2020, beating expectations, while maintaining its expected margins, Medtronic’s stock should gain – especially versus the S&P 500, assuming no change in revenue and margin expectation for S&P500. Also, Medtronic’s P/E Ratio is lower when compared with Boston Scientific and Abbott. Medtronic’s lower P/E with respect to Boston Scientific makes sense, though when compared to Abbott, it appears to be low, as discussed in the sections below. You can look at our interactive dashboard analysis ~ Does Medtronic’s P/E Ratio Make Sense? ~ for more details.

Medtronic’s P/E Ratio At About 14.7, Is Largely In Line With Historical Average

  • Improvement in revenue growth with margins remaining relatively steady has helped.
  • Slight improvement in the P/E ratio for fiscal 2019 was due to revenue growth as well as an uptick in margins for that fiscal, and higher expected revenues going forward, as demonstrated in the charts below.
  • Medtronic’s jump in revenues in fiscal 2016 can be attributed to the Covidien acquisition.
  • Look at our analysis on Medtronic’s revenues and expenses for more details.

Medtronic vs. S&P 500: Higher 2020 Revenue Growth For Medtronic Could Present Opportunity

  • Medtronic’s P/E has been consistently lower than the S&P 500, explained by Medtronic’s smaller revenue growth for the most part.
  • However, Medtronic’s 2x higher margins versus the S&P 500 lends support to a higher multiple, especially if Medtronic shows higher revenue growth in 2020, when compared to historical years.

Medtronic vs. Boston Scientific: Compared to Boston Scientific, Medtronic’s P/E Ratio is much lower

  • This is expected given that Medtronic’s Revenue Growth has been consistently lower than Boston Scientific’s, even though margins are comparable.
  • Boston Scientific’s P/E ratio expanded in 2018, amid upbeat revenue and margins guidance by the company for 2019.

Medtronic vs. Abbott: Compared to Abbott as well, Medtronic’s P/E Ratio is much lower

  • Medtronic’s Revenue Growth has largely been lower than Abbott’s, even though Medtronic’s margins are slightly higher.
  • Abbott acquired St. Jude Medical in 2016, and that explains the jump in revenues in 2017, and a decline in share price in 2016 explains the lower P/E multiple, again due to the acquisition news.

 

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