Medtronic plcMDTNYSE
Loading
DCF Valuation
DCF Valuation Summary
Strong Buy
Fair Value: $160.68 per share(market-calibrated)
+63.8%
Upside to Fair Value
Current
$98.10
Pure Model
$173.84
Fair Value
$160.68
Bull Case
$226.90
Bear Case
$132.35
Market Reality Check
Model Terminal Growth
3.00%
Market-Implied Growth
0.50%
Calibrated Growth
2.13%
Fair value uses 65% model / 35% market-implied terminal growth. Pure model: $173.84.
What's Driving This Ratingfor MDT
↓
CapEx normalizing toward maintenance
Historical CapEx is 4.55% of revenue (heavy investment phase). Model fades this to 3.50% by Year 10, freeing up ~$579M in annual FCF. This is the biggest driver of long-term cash flow improvement.
✓
Premium margins already priced in
EBIT margin of 20.85% is already well above sector average. The model holds this level — there's limited room for margin expansion to drive upside. Valuation depends primarily on revenue growth.
→
Moderate revenue growth
Analyst consensus projects 7.81% revenue growth, fading to 3.00% by Year 10. Revenue reaches $55.2B (vs $33.5B today).
🎯
Market pricing in lower growth than model
The market implies only 0.50% perpetual growth — 250bps below the model's 3.00%. This suggests the market sees headwinds or risks not in the model.
✓
Strong cash flow conversion
Year 10 FCF/EBITDA conversion of 72.93% indicates efficient cash generation. FCF reaches $11.7B by Year 10 (21.12% FCF margin).
Weighted Average Cost of Capital (WACC)
Cost of Equity (CAPM)
Risk-Free Rate (Rf)4.50%
Beta (β)0.72
Market Risk Premium4.50%
*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)
Cost of Equity (Re)7.73%
Cost of Debt
Pre-tax Cost of Debt2.50%
Tax Rate16.63%
After-tax Cost of Debt2.08%
Equity Weight (E/V)81.56%
Debt Weight (D/V)18.44%
WACC Calculation
WACC = (E/V × Re) + (D/V × Rd × (1-Tc))
WACC = (81.56% × 7.73%) + (18.44% × 2.08%)
= 6.69%
10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)
| Year | Year 1 | Year 3 | Year 5 | Year 7 | Year 10 |
|---|---|---|---|---|---|
| Revenue | $36.2B | $40.6B | $45.6B | $49.8B | $55.2B |
| EBIT | $7.5B | $8.5B | $9.5B | $10.4B | $11.5B |
| Tax | $1.3B | $1.4B | $1.6B | $1.7B | $1.9B |
| NOPAT | $6.3B | $7.1B | $7.9B | $8.7B | $9.6B |
| + Depreciation | $2.9B | $3.3B | $3.7B | $4.0B | $4.5B |
| - Capex | $1.6B | $1.8B | $1.9B | $1.9B | $1.9B |
| - Δ NWC | $785M | $600M | $686M | $626M | $482M |
| Free Cash Flow | $6.8B | $8.0B | $9.1B | $10.2B | $11.7B |
| Discount Factor | 0.937 | 0.823 | 0.723 | 0.636 | 0.523 |
| Present Value | $6.4B | $6.6B | $6.6B | $6.5B | $6.1B |
FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital
Terminal Value Calculation
Perpetuity Growth Method
Year 10 FCF$11.7B
Terminal Growth Rate3.00%
WACC6.69%
TV = FCF₁₀ × (1+g) / (WACC-g)
Terminal Value$325.5B
PV of Terminal Value$170.3B
Exit Multiple Method
Year 10 EBITDA$16.0B
Exit Multiple (EV/EBITDA)24.0x
TV = EBITDA₁₀ × Exit Multiple
Terminal Value$383.7B
PV of Terminal Value$200.8B
Valuation Summary
Perpetuity Growth Method
PV of Projected FCFs$64.2B
PV of Terminal Value$170.3B
Enterprise Value$234.6B
(-) Net Debt$26.3B
Equity Value$208.3B
Shares Outstanding1.3B
Price per Share$162.00
Exit Multiple Method
PV of Projected FCFs$64.2B
PV of Terminal Value$200.8B
Enterprise Value$265.0B
(-) Net Debt$26.3B
Equity Value$238.7B
Shares Outstanding1.3B
Price per Share$185.68
Pure Model Fair Value
$173.84
Average of perpetuity growth and exit multiple methods (before market calibration)
Sensitivity AnalysisPrice per Share
| WACC ↓ / Growth → | 2.00% | 2.50% | 3.00% | 3.50% | 4.00% |
|---|---|---|---|---|---|
| 4.69% | $238.13 | $263.62 | $269.07 | $257.41 | $246.29 |
| 5.69% | $190.04 | $201.75 | $217.81 | $241.22 | $246.29 |
| 6.69% | $159.21 | $165.65 | $173.84 | $184.60 | $199.36 |
| 7.69% | $136.92 | $140.87 | $145.65 | $151.58 | $159.11 |
| 8.69% | $119.65 | $122.24 | $125.28 | $128.91 | $133.31 |
How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.
Scenario Analysis
Bear Case
$132.35
34.9% vs current
- • -25% vs analyst consensus
- • Terminal growth: 2.5%
- • Beta: 0.90
Base Case
$173.84
77.2% vs current
- • Analyst consensus
- • Terminal growth: 3.0%
- • Beta: 0.72
Bull Case
$226.90
131.3% vs current
- • +25% vs analyst consensus
- • Terminal growth: 3.5%
- • Beta: 0.61
Key Assumptions & Drivers✓ Using Analyst Consensus Estimates• Healthcare Sector
Growth Assumptions (Select Years)
Year 1 Revenue Growth7.81%
Year 3 Revenue Growth5.18%
Year 5 Revenue Growth5.29%
Year 7 Revenue Growth4.37%
Year 10 Revenue Growth3.00%
Terminal Growth Rate3.00%
Margin & Efficiency
Current EBIT Margin20.85%
Tax Rate16.63%
Historical Capex / Rev4.55%
Terminal Capex / Rev3.50%
NWC / Revenue30.00%
Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.
Institutional-Grade Methodology
Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta
Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 24x EV/EBITDA (Healthcare sector)
This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.