Argus Gives Medtronic Improved Prognosis, Expects Nearly 10% Future Growth

Medtronic PLC MDT is poised for better opportunities ahead after a long period of underperformance, Argus said in a Tuesday note.

The firm noted that shares of Medtronic have underperformed the broader market over the past three months, adding 1.9 percent compared to the S&P 500's 6.7-percent advance. Over the past year, Medtronic is 12.9 percent higher, underperforming the S&P 500's 17.3-percent gain.

The Analyst

Argus analyst John Eade upgraded shares of Medtronic from Hold to Buywith a $95 price target.

The Thesis

Medtronic has generated cost synergies from the Covidien Ltd COV acquisition and is now seeking to boost operating margins, Eade said. (See Eade's track record here.)

Medtronic is integrating tuck-in acquisitions completed in fiscal year 2017, the analyst said. 

Argus estimates Medtronic's growth will reach 10 percent over the next two years. The company has cut down its debt using proceeds from asset sales, Eade said. 

Medtronic shares trade at a discount to the peer group. Argus' $95 price target assumes valuation multiples closer to industry averages. Additionally, Eade said Argus likes the stock's 2.3-percent dividend yield and the management's focus on shareholder returns.

"We think the MDT shares are attractively valued at current prices near $81. The shares are trading above the midpoint of the 52-week range of $69-$89," the analyst said. 

"From a technical standpoint, the stock appears to be in a bullish pattern of higher highs and higher lows that began in late September."

The Price Action

Medtronic shares are up over 15 percent year-to-date.

Medtronic was up less than 1 percent at $82.08 at the time of publication.

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Photo courtesy of Medtronic.