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Linked here is a detailed quantitative analysis of Medtronic Inc. (MDT). Provided below are some highlights from the analysis.

Company Description

Medtronic Inc. is a global medical device manufacturer with leadership positions in the pacemaker, defibrillator, orthopedic, diabetes management, and other medical markets.

Fair Value

When calculating fair value, I consider the NPV MMA Differential Fair Value along with the following four calculations of fair value. See page 2 of the linked PDF for a more detailed description.

1. Avg. High Yield Price
2. 20-Year DCF Price
3. Avg. P/E Price
4. Graham Number

Medtronic Inc. has recently been trading at a discount only to the third point above. Since the stock's tangible book value is not meaningful, a Graham number can not be calculated. Also, when considering the NPV MMA Differential, the stock has been trading at a 17.4% premium to its calculated fair value of $76.08. Medtronic Inc. did not earn any Stars in this section.

Dividend Analytical Data

In this section, there are three possible Stars and three key metrics to take a look at. See page 2 of the linked PDF for a more detailed description of each.

1. Free Cash Flow Payout
2. Debt To Total Capital
3. Key Metrics
4. Dividend Growth Rate
5. Years of Div. Growth
6. Rolling four-year Div. > 15%

Medtronic Inc. earned two Stars in this section for the second and third points listed above. The stock earned a Star as a result of its most recent Debt to Total Capital being less than 45%. Additionally, the stock earned a Star for having an acceptable score in at least two of the four key metrics measured. The company has paid a cash dividend to shareholders every year since 1977, and it has increased its dividend payments for 47 consecutive years.

Dividend Income vs. MMA

Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA) or Treasury bond? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section. See page 2 of the linked PDF for a more detailed description.

1. NPV MMA Diff.
2. Years to > MMA

The NPV MMA Diff. of $336 is below the $500 target I look for in a stock that has increased dividends as long as Medtronic Inc. has. If the company grows its dividend at a pace of 4.3% per year, it will take four years to equal an MMA yielding an estimated 20-year average rate of 3.75%. Medtronic Inc. earned a check for the Key Metric 'Years to >MMA' since its four-year range is less than the five-year target.

Peers

The company's peer group includes: The Becton, Dickinson and Company (BDX), with a 1.6% yield, and Baxter International Inc. (BAX), with a 3.0% yield.

Conclusion

Medtronic Inc. did not earn any Stars in the fair value section, earned two Stars in the dividend analytical data section, and did not earn any Stars in the dividend income vs. MMA section, all for a total of two Stars. This quantitatively ranks Medtronic Inc. as a 2-Star 'Weak' stock.

Using my D4L-PreScreen.xls model, I determined the share price would need to decrease to $81.20 before Medtronic Inc.'s NPV MMA Differential increased to the $500 minimum that I look for in a stock with 47 years of consecutive dividend increases. At that price, the stock would yield approximately 3.7%.

Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $500 NPV MMA Differential, the calculated rate is 5.3%. This dividend growth rate is higher than the 4.3% used in this analysis, thus providing no margin of safety. Medtronic Inc. has a risk rating of 1.75, which classifies it as a Medium risk stock.

The company owns a diversified portfolio with a focus on developing products for a wide range of chronic diseases. Although it is exposed to the highly competitive areas of the medical equipment markets, Medtronic Inc. enjoys many competitive advantages, including scale (operations and sales), product breadth, and financial strength.

The stock has recently been trading above my calculated fair value of $76.08. Its valuation and its reasonable yield leads me to give it serious consideration as an addition to my Dividend Growth Stock Portfolio.

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