Why Medtronic (MDT) Stock Is Down Today

NEW YORK (TheStreet) -- Medtronic (MDT) was falling 2.7% to $64.23 Tuesday after the U.S. government announced plans to decrease inversion tax benefits for companies.

Under the new plan, the U.S. Treasury Department and the IRS will make it difficult for companies to make inversion deals, reducing the benefit of moving their headquarters outside of the U.S. for lower taxes. The medical appliances and equipment maker recently announced plans to move its headquarters to Ireland for its lower tax rate through its acquisition of Covidien (COV) .

Part of the new rules require inverted companies to pay U.S. taxes when taking loans from foreign subsidiaries, according to Bloomberg.

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"These first, targeted steps make substantial progress in constraining the creative techniques used to avoid U.S. taxes, both in terms of meaningfully reducing the economic benefits of inversions after the fact, and when possible, stopping them altogether," Treasury Secretary Jacob J. Lew said in a statement. Lew added that "for some companies considering deals, today's action will mean that inversions will no longer make economic sense."

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, largely solid financial position with reasonable debt levels by most measures, solid stock price performance and expanding profit margins. 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 7.8%. Since the same quarter one year prior, revenues slightly increased by 4.7%. 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.
  • MDT's debt-to-equity ratio of 0.67 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 3.25 is very high and demonstrates very strong liquidity.
  • Looking at where the stock is today compared to one year ago, we find that it is not only higher, but it has also clearly outperformed the rise in the S&P 500 over the same period, despite 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.
  • The gross profit margin for MEDTRONIC INC is currently very high, coming in at 77.14%. Regardless of MDT's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, MDT's net profit margin of 20.38% compares favorably to the industry average.
  • You can view the full analysis from the report here: MDT Ratings Report

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