Is Medtronic's Beat and Stock Slide a Buying Opportunity?
Here's why the shares are selling off after consensus-topping results — and my idea on how to trade them.
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Ireland-based healthcare technology giant Medtronic (MDT) went to the tape on Tuesday morning with its fiscal third-quarter financial results.
For the period ended January 23, Medtronic posted adjusted EPS of $1.36 (GAAP EPS: $1.07) on revenue of $9.017 billion. These top-line and bottom-line results beat Wall Street's consensus view while the sales number was good enough for year-over-year growth of 8.7%.
Chairman and CEO Geoff Martha commented in the press release... "Q3 marks another strong quarter, delivering 6% organic revenue growth, ahead of guidance, demonstrating the strength of our portfolio. By unlocking new markets and investing in high-growth opportunities, we are accelerating performance across the company. Our innovation pipeline and portfolio breadth give us confidence in our ability to sustain long-term growth. It's an exciting time for Medtronic."
Segment Sales Performance
- Cardiovascular generated revenue of $3.457 billion (+13.8%).
- Cardiac Rhythm & Heart Failure generated revenue of $1.856 billion (+20.1%).
- Structural Heart & Aortic generated revenue of $929 million (+6.3%).
- Coronary & Peripheral Vascular generated revenue of $672 million (+8.8%).
- Neuroscience generated revenue of $2.558 billion (+4.1%).
- Cranial & Spinal Technologies generated revenue of $1.31 billion (+4.8%).
- Special Therapies generated revenue of $746 million (+1.9%).
- Neuromodulation generated revenue of $503M (+5.8%).
- Medical Surgical generated revenue of $2.173B (+4.9%).
- Surgical & Endoscopy generated revenue of $1.654B (+3.6%).
- Acute Care & Monitoring generated revenue of $519M (+9.1%).
- Diabetes generated revenue of $796M (+14.8%).
Guidance
For the full fiscal year, this being the fourth quarter, Medtronic is guiding organic revenue growth towards growth of roughly 5.5%.
It is also projecting full-year adjusted EPS of $5.62 to $5.66. That puts the midpoint of the range one penny below the $5.65 that Wall Street was looking for.
This is a primary reason why the stock is selling off on Tuesday.
Fundamentals
Fiscal year to date (nine months), Medtronic has generated operating cash flow of $4.757 billion. Out of that has come capex spending of $1.416 billion, leaving free cash flow of $3.341 billion (+7.2%). Out of that number, the company has paid out $2.731 billion in cash dividends to shareholders and repurchased $600 million in ordinary shares.
Medtronic did not release its updated balance sheet Tuesday morning. In the recent past, the company has released that information in a Form 10-Q usually about a week after releasing the earnings information in a Form 8-K. In that recent past, Medtronic has maintained a quality current situation albeit with a heavy long-term debt load.
The Chart
Quite obviously, MDT has developed a double-top pattern of bearish reversal with a $95 pivot. Relative Strength is weak and the daily MACD (moving average convergence divergence) has just suffered a bearish cross-under of the 26-day EMA (exponential moving average) by the 12-day EMA while the histogram of the 9-day EMA has crossed into negative territory. This is all bearish.
Simply put, I would not buy this dip above the stock's 200-day SMA (simple moving average) unless I was already sure that support had been discovered either at pivot or at the thin red line. On that point, I would not be opposed to writing March 20 $92.50 puts for about $1.25. This way, if one does get smacked in the teeth, at least it's wearing a $91.25 net basis.
In my opinion, that's preferable to paying more than $96 per share for an equity stake. If it never gets there, you still keep the premium paid. If it does get there, at least the pain has been eased.
At the time of publication, Guilfoyle had no positions in any securities mentioned.
