Medtronic

Medtronic PLC is assigned a 5-star quantitative star rating, indicating our belief that this share class offers a compelling opportunity for investors. The stock currently trades at a 18% discount to our quantitative fair value estimate of $106.71 per share, which is reinforced by this estimate's low uncertainty rating.

The firm's profitability bolsters our estimated valuation. Highly profitable companies are often more resilient in recessions and are likely to generate stronger future cash flows for shareholders. Reflecting the firm's profitability is its earnings yield of 6.9%, which ranks in the top 40% compared with global peers. This suggests that it is generating substantial earnings relative to its share price, which contributes to our view that shares are cheap.

Conversely, the firm's balance sheet is potentially concerning. Low leverage can limit a company's ability to invest in growth, potentially reducing shareholder value compared with a balanced use of debt and equity financing. The firm's EBITDA/interest coverage ratio of 14.2, for example, falls in the top 50% globally. The company may have too conservative of a balance sheet based on its high EBITDA/interest coverage ratio, potentially underinvesting in growth opportunities and undermining the long-term trajectory of cash flows. Despite our favorable price/fair value ratio, this characteristic is a negative attribute.

The company's narrow quantitative moat rating indicates it could outearn its cost of capital and maintain robust margins for 10 years or longer. Its moat is bolstered by its strong financial health, which indicates low near-term bankruptcy risk.