Medtronic Is Great but Its Stock Is Too Expensive for Now

NEW YORK (TheStreet) -- Medtronic (MDT) isn't the first name investors think of when asked about the global leader in medical technology. Most people think of Johnson & Johnson (JNJ).

But the Minneapolis-based medical device company hasn't let the lack of name recognition stop it from making headlines. Wednesday, Medtronic announced it submitted the final module of its pre-market approval application for its IN.PACT Admiral drug-coated balloon to the U.S. Food and Drug Administration.

This advances Medtronic's plans to introduce the new medical device for the treatment of peripheral artery disease afflicting millions of Americans. It has the potential to be a blockbuster if approved.

In addition, at last week's analysts meeting, Medtronic management emphasized its focus on revenue and earnings growth while remaining open to possible acquisitions if beneficial to the company's shareholders. Does that make Medtronic a possible suitor for British medical device company Smith & Nephew (SNN)?

The mere possibility of a merger pushed MDT to a 52-week high of $64.33 last week. Shares closed Wednesday at $61.17, up nearly 7% for the year to date.

What concerns me is the share price last week rose to a level where the dividend yield fell to a paltry 1.74%. When an investor compares that dividend yield to Johnson & Johnson's 2.72%, the scales tip decidedly against Medtronic.

Don't misunderstand: Medtronic is a great health-care company that has done a stellar job increasing the price of its stock. The following five-year chart demonstrates this graphically.

MDT Chart
data by YCharts

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