Interested in what the path of Medtronic’s (MDT) equity price has been since it was added to the Dividend Growth portfolio?
Incredible, no?
It’s so important that we point to our favorite ideas such that you can become familiar with our track record. We don’t get everything correct, but our hit rate on new ideas has been near perfect. Unlike other research houses, we take to heart Warren Buffett’s two rules: Rule No. 1: “Never lose money. Rule No. 2: Never forget rule No. 1.” This is why it may be a few weeks or a few months between each email transaction alert we send out to members. We want to deliver only the best. If we were interested in throwing out ideas on a daily basis, we’d simply hire a monkey to throw darts at the stock pages in the newspaper, as the saying goes. Even a couple ideas per month over 10 years, for example, would leave an investor 240 companies to choose from. That’s nearly half the S&P 500, hardly the definition of stock selection.
With that reminder aside, star-performer and Dividend Growth portfolio holding Medtronic reported solid fiscal second-quarter results today. Revenue grew 5% on a constant-currency basis, and non-GAAP diluted earnings per share of $0.96 advanced at a similar pace. On a reported basis, GAAP net earnings declined, but we can’t fault the company for making a $100 million pre-tax charitable cash donation to the Medtronic Foundation, the reason for the reported decline. Corporations learned a long time ago that charity is good for business, and this move may help grease the gears for its tax-inversion deal with Covidien (COV), to which the firm remains committed. Other companies such as Walgreens (WAG) and AbbVie (ABBV) have terminated similar tax-inversion plans, folding to political pressures.
Both Medtronic’s US and international revenue showcased a mid-single-digit pace of advancement in the period, while emerging market sales surged 12% on a constant-currency basis, now accounting for ~13% of the company’s revenue. Management highlighted this balanced growth in its commentary and noted strong execution across the global organization. Looking ahead, the company raised the low end of its fiscal year 2015 revenue growth guidance range to 4%-5% on a constant-currency basis as it maintained its diluted non-GAAP earnings per share outlook in the range of $4-$4.10. The latter implies bottom-line growth of ~7%-10% on a currency-neutral basis.
Shares are now trading in-line with our $70+ fair value estimate. Though we may look to trim the position in Medtronic in the Dividend Growth portfolio soon, letting winners run is an integral part of the Valuentum strategy that continues to serve members well.