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Covidien (COV) Showing Signs Of Being Water-Logged And Getting Wetter

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

Trade-Ideas LLC identified Covidien ( COV) as a "water-logged and getting wetter" (weak stocks crossing below support with today's range greater than 200%) candidate. In addition to specific proprietary factors, Trade-Ideas identified Covidien as such a stock due to the following factors:

  • COV has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $406.3 million.
  • COV has traded 4.3 million shares today.
  • COV traded in a range 222.6% of the normal price range with a price range of $2.07.
  • COV traded below its daily resistance level (quality: 28 days, meaning that the stock is crossing a resistance level set by the last 28 calendar days. The resistance price is defined by the Price - $0.01 at the time of the signal).

Stocks matching the 'Water-Logged and Getting Wetter' criteria are worthwhile stocks to watch for a variety of factors including historical back testing and volatility. Trade-Ideas targets these opportunities because the stock is exhibiting an unusual behavior while displaying negative price action. In this case, the stock crossed an important inflection point; namely, "support" while at the same time the range of the stock's movement in price is twice its normal size. This large range foreshadows a possible continuation as the stock moves lower.

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More details on COV:

Covidien plc develops, manufactures, and sells healthcare products for use in clinical and home settings worldwide. The stock currently has a dividend yield of 1.4%. COV has a PE ratio of 26.1. Currently there are 7 analysts that rate Covidien a buy, no analysts rate it a sell, and 10 rate it a hold.

The average volume for Covidien has been 4.6 million shares per day over the past 30 days. Covidien has a market cap of $41.1 billion and is part of the health care sector and health services industry. The stock has a beta of 1.14 and a short float of 1.3% with 0.64 days to cover. Shares are up 32.9% year-to-date as of the close of trading on Tuesday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Covidien as a buy. The company's strengths can be seen in multiple areas, such as its solid stock price performance, growth in earnings per share, increase in net income, revenue growth and notable return on equity. Although no company is perfect, currently we do not see any significant weaknesses which are likely to detract from the generally positive outlook.

Highlights from the ratings report include:

  • Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 56.76% over the past year, a rise that has exceeded that of the S&P 500 Index. Regarding the stock's future course, although almost any stock can fall in a broad market decline, COV should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
  • COVIDIEN PLC has improved earnings per share by 21.3% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past year. We feel that this trend should continue. During the past fiscal year, COVIDIEN PLC increased its bottom line by earning $3.40 versus $3.37 in the prior year. This year, the market expects an improvement in earnings ($3.99 versus $3.40).
  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and greatly outperformed compared to the Health Care Equipment & Supplies industry average. The net income increased by 0.5% when compared to the same quarter one year prior, going from $439.00 million to $441.00 million.
  • Despite its growing revenue, the company underperformed as compared with the industry average of 3.5%. Since the same quarter one year prior, revenues slightly increased by 2.7%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Health Care Equipment & Supplies industry and the overall market, COVIDIEN PLC's return on equity exceeds that of both the industry average and the S&P 500.

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