Current Ideas/Analysis.
Medtronic PLC
Screen: Moving Avg Crossover, Low DEbt To Capital, Rising Relative Strength
Ticker: MDT. Market Cap: $135.86 Billion. Volume: 2,925,700. Short Volume: 345,418. Short Volume Ratio: 11.18
Medtronic PLC (MDT) $100.71
Fundamental Look:
· Located in Dubland, Ireland, founded in 1949. Provider of medical services, technology, and solutions to hospitals, physicians, and clinicians, globally.
· Shares of MDT are down 11.2% year to date and sits 17.5% below its 52 week high of $122.15.
· From a fundamental vantage point, the last 12 months of revenue are down 5.3% in comparison to full year end 2019. On a sequential basis, the most recent quarter showed a 23% decline from the prior quarter, which in normal circumstances would certainly be outside of my comfort zone.
· In looking to comments from the most recent quarterly call, the decline in sequential revenue was largely attributed to Covid related factors, namely the reduction in elective medical procedures, as healthcare systems directed the bulk of their attention to Covid-19 related procedures.
· MDT’s total debt to capital ratio sits at 33% is within my comfort zone (which in general is sub 50% for long ideas). They’ve also spent within operating cash flows in each of the last 4 years, which gives me additional comfort specific to their debt levels remaining in check. The same holds true as it relates to MDT potentially diluting shareholders.
· MDT will be reporting their 1Q21 results around August 25th 2020.
Technical Look:
· From a technical perspective MDT’s 10 day Exponential Moving Average crossed above the 100 day EMA on 8/6/20 with prices increasing 4.1% since that time.
· This most recent push higher is accompanied by increased momentum (using the 14 period RSI as means of measurement). Trading volume (using a 20 period time frame) has actually been average, with the most recent candles (both in price movement and trading volume) indicating uncertainty, in my view.
· Applying an anchored volume weighted average price indicator, and anchoring from the 3 most recent earnings releases shows potential support points at $94.63, $95.62 per share. In candor however, it also shows a possible point of resistance at $102.27, which in my view fits with the recent uncertainty and narrow trading range of recent candles.
· For background, I like to make use of AVWAP to give insight into the average entry price of all long positions from a given/specific point in time. In this particular instance, you have investors who established positions as of 5/21/20 and 2/18/20 with average entry prices below current levels (and conceivably likely to maintain their long positions).
· By the same token, those who established positions as of 11/19/19, are showing an average price point of $102.27, which is above current levels. Those investors could very well be inclined to exit their current positions once “made whole”.
· Given the aforementioned resistance, my entry point would be near the $103 mark. From a risk management perspective, I would be looking to exit my position at 98.37, should my thesis prove incorrect, amounting to a 4.5% max loss threshold and equivalent to 1.89x the current Average True Range (ATR) of 2.45
Disclaimer: The information provided on this site is opinion, intended for informational purposes only, and does not constitute investment advice.