Notes to myself on Medtronic (MDT)

AI Summary

Author sees Medtronic as fairly valued but flags multiple red flags and stays on the sidelines watching the stock.

MDT — WATCH The author believes Medtronic is not expensive at a 15.77 forward P/E and estimates fair value near $96 assuming 3% perpetual EPS growth, with upside to $122-133 if analyst growth forecasts materialize. He sees concrete catalysts including new cardiology products (PFA ablation, TAVR competition), the 2026 diabetes spinoff, Elliott Management board involvement, and a worst-case $3.4bn hernia mesh settlement. However, he is staying on the sidelines because of red flags such as J&J entering PFA, ROIC barely above the 7% cost of capital, declining dividend growth, and Medicare reimbursement pressure that could make the stock cheaper.

Conclusion: the company isn't expensive compared to what is going to its 2026 earnings, the forward P/E is 15.77. But i see too many red flags that could make the company become cheaper. I will stay on the sidelines and watch the stock.

Score 5

Comments 5

▶ Full Post Text

I did a deep dive into Medtronic's business, here is my summary conclusion:

**Catalysts**

* Growth will come from new products in the Cardio Unit: PFA in ablation and compe te against EW on TAVR since BSX capitulated in May 2025.
* 2026 Spinoff of low growth diabetes business unit so that the company can once again be rated upwards.
* Elliott Management has 2 board seats to advise company on growth and operational streamlining. One of the new board members include previous Styker CFO
* Other catalysts would be the settlement of the hernia mesh trial (watch out for Jan 14 deadline). C.R. Bard's settlement was around 1.7bn i am assuming the worst case at double that. ie. 3.4bn.

**Red flags**

* In terms of moat, the heart business has strengthen in the past few years , everything else has retreated or stabilised. The diabetes unit has weakened. Morningstar has narrowed its moat and they anticipate that J&J will enter into the PFA market and spoil MDT's party.
* ROIC is better now than previous years but it is barely covering cost of capital of 7%
* The growth fund are exiting the stock while the value guys aren't really buying big yet
* This is a dividend aristocrat (>25 years of uninterrupted dividend increase) and the dividend yield is attractive at 3% but the dividend increase has gradually decreased YOY from almost +10% in 2017 to +1.4% in 2024/2025. (Possibly to conserve cash for litigation settlement? )
* Also Medtronic's devices are indirectly subjected to Medicare reimbursement rates; increasing pressure on payments could hurt profitability

==========

**Valuation**

on a straight forward pricing perspective, the math isnt hard:

TTM EPS is around $5.57

ignoring the abnormal growth of Management's MSD long term guidance  (and FY2027 is about "HSD"), i assume that MDT will grow EPS at 3% forever, the fair value rough estimation = (TTM EPS \* LTG ) / ( DISCOUNT RATE - LTG) = 5.57 x 1.03 / (9% -3%) =  approximately $96

So, worst case is that MDT can grow at 3%, we can expect $96 as the fair value. If MDT can growt at 6-7.5% which is what analyst are forecasting, then it is just gravy at $122 to $133

===========

**Conclusion**: the company isn't expensive compared to what is going to its 2026 earnings, the forward P/E is 15.77.  But i see too many red flags that could make the company become cheaper. **I will stay on the sidelines and watch the stock.**

Ideas

u/raytoei Reddit r/ValueInvesting

Fairly valued; too many red flags; watching for cheaper entry.

The author believes Medtronic is not expensive at a 15.77 forward P/E and estimates fair value near $96 assuming 3% perpetual EPS growth, with upside to $122-133 if analyst growth forecasts materialize. He sees concrete catalysts including new cardiology products (PFA ablation, TAVR competition), the 2026 diabetes spinoff, Elliott Management board involvement, and a worst-case $3.4bn hernia mesh settlement. However, he is staying on the sidelines because of red flags such as J&J entering PFA, ROIC barely above the 7% cost of capital, declining dividend growth, and Medicare reimbursement pressure that could make the stock cheaper.

▶ Full Post Text

Ideas

More from Reddit — r/ValueInvesting