Medtronic Inc: fairly valued at $41/share

I believe Medtronic, Inc. ($MDT), at approximately $41/share is fairly valued on a cash flow valuation basis.  Assuming all else at $MDT meets my standard for good business, I'd buy it today for the long term at $34.

One of the largest medical device companies, Medtronic develops and manufactures therapeutic medical devices for chronic diseases. Its implantable products include pacemakers, defibrillators, heart valves, stents, insulin pumps, and artificial spinal discs. The company markets its products to health-care institutions and physicians in the United States and overseas. Foreign sales account for about 41% of the company's total sales.

I estimated the firm's WACC at 10.48% using the Capital Asset Pricing Model and the company's recent SEC filings.

Recent free cash flows and noted growth rates:

Year	FCF $Millions
2001	1392
2002	1204
2003	1698
2004	2421
2005	2367
2006	963
2007	2285
2008	2883
2009	3380
2010	3558
TTM	3876

Average Annual Growth: approx. 22%
CAGR: approx. 11%
Consensus Forecast Industry 5-Year Growth: approx. 17% per year
Consensus Forecast Company 5-Year Growth: approx. 9% per year

Assuming the company achieves a 5-year growth rate in FCF of 9% per year, and assuming that after the next five years, the company achieves no growth in FCF or 0% growth per year forever:

Discounted Cash Flow Valuation

Year	FCF $ Millions
0	3876
1	4225
2	4605
3	5020
4	5471
5	5964
Terminal Value	62022

The firm's future cash flows, discounted at a WACC of 10.48%, give a present value for the entire firm (Debt + Equity) of $56,295 million. If the firm's fair value of debt is estimated at $11,075 million, then the fair value of the firm's equity could be $45,220 million.  $45,220 million / 1070 million outstanding shares is approximately $42 per share and a 20% margin of safety is $34. Assuming all else at $MDT meets my standard for good business, I'd buy it today for the long term at $34.

Sources
Morningstar.com

Medtronic.com

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.