NEW YORK (TheStreet) -- Shares of Medtronic Inc. (MDT - Get Report) are up 9.64% to $66.55 in pre-market trade as the medical devices company agreed to buy Covidien Plc (COV) for $42.9 billion in cash and stock as it transforms into a broader-based company bolstered by new tax advantages, Bloomberg reports
Medtronic will pay the equivalent of $93.22 for each share of Dublin-based Covidien, or about 29% more than Covidien's New York closing price of $72.02 on June 13, the companies said yesterday in a statement.
The combined company, called Medtronic Plc, will be based for tax purposes in Ireland, Bloomberg said.
TheStreet Ratings team rates MEDTRONIC INC as a Buy with a ratings score of A. TheStreet Ratings Team has this to say about their recommendation:
"We rate MEDTRONIC INC (MDT) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, reasonable valuation levels, good cash flow from operations, largely solid financial position with reasonable debt levels by most measures and increase in stock price during the past year. We feel these strengths outweigh the fact that the company has had sub par growth in net income."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- Despite its growing revenue, the company underperformed as compared with the industry average of 3.6%. Since the same quarter one year prior, revenues slightly increased by 2.4%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- Net operating cash flow has increased to $1,328.00 million or 11.87% when compared to the same quarter last year. In addition, MEDTRONIC INC has also modestly surpassed the industry average cash flow growth rate of 7.50%.
- MDT's debt-to-equity ratio of 0.61 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further. Even though the debt-to-equity ratio shows mixed results, the company's quick ratio of 3.24 is very high and demonstrates very strong liquidity.
- Compared to where it was a year ago today, the stock is now trading at a higher level, regardless of the company's weak earnings results. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
- You can view the full analysis from the report here: MDT Ratings Report