Why Medtronic (MDT) Stock Is Down Today

NEW YORK (TheStreet) -- Shares of Medtronic  Inc.  (MDT) are slightly lower in pre-market trade at $63.26 after it was reported that the medical device maker is likely to try to renegotiate the structure and terms of its $42.9 billion deal to buy Ireland's Covidien (COV) in response to new U.S. tax rules, sources told Reuters.

New U.S. Treasury rules make it more expensive for Medtronic to buy Covidien, by potentially requiring it to take out a loan instead of using cash held abroad, sources say and a Reuters analysis of the contract.

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 7.7%. 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.
  • 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.
  • 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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