We are reaffirming our "buy" rating on Medtronic plc (MDT) — one of the world’s largest medical technology and solutions companies, notes David Toung, an analyst with Argus Research, a leading independent Wall Street research firm.

Its devices focus on cardiac rhythm management, spinal and surgical navigation technologies, treatments for diabetes and neurological conditions, vascular therapies, and cardiac surgery. The company is reinvesting its operating cash flow to support product launches and accelerate new product development.

We believe that the company has strong growth opportunities from both current and soon-to-be-launched products, and a solid market position in its Minimally Invasive Therapies, Brain Therapies, and Pain Therapies units, as well as in its overseas Diabetes Group.

Medtronic reported revenue growth of 37% in fiscal 4Q21 — a substantial improvement from the prior-year quarter, when hospitals suspended most elective surgical procedures due to the pandemic. The company expects strong top-line growth in FY22 as its core businesses continue to recover from their pandemic lows.

For FY22, management expects adjusted EPS of $5.60-$5.75 and organic revenue growth of 9%. Based on the updated guidance, we are raising our FY22 adjusted EPS estimate to $5.70 from $5.60 and setting an FY23 estimate of $6.50.

Cash flow from operations in FY21 was $6.240 billion, compared to $7.234 billion a year earlier. The company priorities for the use of cash are increased R&D spending, tuck-in M&A, dividend payments, and stock buybacks.

The company recently raised its dividend to an annualized $2.52, up from a prior $2.32. This marks the 44th str
aight year in which the company has raised its payout. Our dividend estimates are $2.52 (raised from $2.48) for FY22 and $2.68 for FY23.

MDT trades at 22.2-times our FY22 EPS estimate, below the average multiple of 24.3 for our coverage universe of med-tech stocks. We see this as an attractive valuation.

The company continues to advance its pipeline, with more than 230 regulatory approvals in FY21. It also plans to increase R&D spending by more than 10% in FY22. We are raising our target price from $135 to $150 per share.

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