How High Can Medtronic Fly?

Shares of Medtronic (NYS: MDT) hit a 52-week high today. Let's look at how it got here and whether clear skies are ahead.

How it got here
Steadily improving results have pushed medical-device maker Medtronic to this new high, and the entire industry seems to be coping well with new rules handed down by the government. The company is reaching new highs today on the back of a solid earnings report that saw revenue rise 1.5% to $4.01 billion and net income increase to $864 million from $821 million a year ago. These aren't blowout results, but expectations have fallen so far that even slight growth is good news right now.

The company's cardiac rhythm unit was the one blemish in the quarter. The products for which the company is most well-known, such as pacemakers, saw a 5% decline in revenue, but the company's restorative-therapies group made up the slack in the quarter.

The new 52-week high is encouraging in the short term, but the stock has been stuck in a rut for years. Medtronic is down 22% over the past five years and hasn't left the range it traded at shortly after the recession ended. That's vastly better than Boston Scientific (NYS: BSX) , which has had a plethora of its own problems, but Medtronic lags far behind Johnson & Johnson (NYS: JNJ) and Abbott Labs (NYS: ABT) .

MDT Chart
MDT Chart

MDT data by YCharts.

From a financial perspective, Medtronic compares very favorably to these competitors based on the statistics below. Strong return on assets and a low forward P/E are particularly favorable for investors looking for value in the device space.






Johnson & Johnson





Abbott Laboratories





Boston Scientific





Source: Yahoo! Finance.

The only one of these stocks worth staying away from altogether is Boston Scientific because of its low return on assets and falling sales. Medtronic looks like the best buy of the bunch.

What's next?
So will Medtronic leave the price range it's been stuck in for more than a decade?

Pressure on the entire medical industry will be coming no matter who wins the election or whether Obamacare is repealed. We simply can't sustain the current level of spending on medicine, and that's what will be the biggest challenge going forward. So investors shouldn't have their sights set too high and should focus on the stock's low P/E and 2.6% dividend instead of potential growth.

I think the stock can move higher over the next year, but not significantly. Growth is just too slow, and there's too much long-term price pressure on the industry to see too much of a gain, in my opinion. The CAPS community, however, is very bullish, giving the stock a five-star rating. Who do you think has it right? Post your thoughts in our comments section below.

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