Financial analysis of Medtronic as an investment opportunity

Medtronic Analysis

Company Overview

Medtronic, Inc. is one of the world's leading suppliers of medical technologies used in a variety of therapies and procedures in hospitals, private practice offices, and other medical settings (Medtronic, 2012; Yahoo Finance, 2012). As many of their products, especially some of those that are more profitable to the company, are generally associated with aging and medical conditions that become more common and/or severe with age, the company would seem to be a solid investment in the coming years as the "baby boomer" generation ages (Yahoo Finance, 2012). Determining whether or not this is truly the case requires a financial analysis of the company as well, however. This analysis, broken down into areas of risk, return, and equity valuation, is presented below, with a conclusion providing a summary of the findings and the current advisability of Medtronic, Inc. As an investment opportunity.

Risk

Given the company's strong sales and fiscal performance over the more-than-half-century of its existence, there is relatively little risk associated with this investment, and stock increases (assuming the overall industry/economic environment remains stable) will almost certainly exceed inflation and "risk free" investments (Medtronic, 2012; Yahoo Finance, 2012). Certain indicators within the company do raise some cause for concern, however the stock is priced more attractively than in some time, which further increases the reward potential and reduces the overall risk burden (Medtronic, 2012). Overall, this stock should be considered low-risk.

Equity Valuation

Though the return on an investment in this company is expected to be fairly attractive, it will not likely yield substantial payouts in the short-term, but rather it is long-term equity in the company that is a truly attractive prospect (Yahoo Finance, 2012). Not only do ongoing an increasing dividend payouts make this ownership attractive, but the value of the company -- recently in decline -- is likely to substantially increase as economic stability returns and the market for the industry increases (Yahoo Finance, 2012). The profit margin for the company remains strong and sales have continued to grow, meaning equity is currently undervalued (Medtronic, 2012).

Summary and Conclusion

The risks of this company are relatively low -- it has high liquidity, strong sales and a substantial profit margin, meaning it is very unlikely that an investment would be lost or fail to return a rate at least equal to that of a risk-free investment, and probably much higher. Returns in general are expected to be much higher than risk-free investments over the long-term, and even short-term dividend payouts will start to generate a significant return in the short-term. The equity valuation of the company is thus fairly high, especially given the relatively low cost of equity in the current market. The drop in the price-to-earnings ratio that occurred over the past several years combined with the increased revenue that the firm shows and its higher profit margin offset the slightly reduced current ratio, making a long-term investment in this company quite valuable. In all three interrelated areas considered above, Medtronic, Inc. appears to be a very solid investment opportunity.

A basic qualitative analysis of the environment and industry provides encouraging though basic support of an investment in Medtronic, Inc. A growing market for many of Medtronic's exclusive or specialized devices and technologies is sure to drive sales over the next decade and beyond, and while innovation remains a core of the company the use of already-developed yet protected products will drive profit margins higher, as well (Medtronic, 2012; Yahoo Finance, 2012). An investment in this company at the current time is recommended for a long-term investor seeking stable returns.