Medtronic Stock, A Bottom Is In Play

Key Points

• Medtronic bottoms and looks ready to push higher after solid results. 
• A turnaround is in play that should gain momentum in 2023. 
• The stock yields 3.2% and trades at fair value relative to the S&P 500. 

Hum-drum Medtronic NYSE: MDT has seen its shares fall dramatically over the past year due to a massive downdraft in the analysts' sentiment. The downdraft was caused by the peaking of COVID-19 and the tailwind it provided to businesses. The takeaway for today is that Medtronic shares have priced that weakness in, and the time to buy into this market is at hand.

The Q3 results and guidance show that business is stabilizing and growth is back on the table. As tepid as it is, the guidance is also favorable to the analysts' expectations and may lead to a bottoming in their sentiment. 

As it is, the 20 analysts rating this stock have it pegged at a firm Hold. This is significant because of the many analysts covering the stock and the investment dollars they represent and because they’re holding. Although the rating is a Hold, there is only 1 sell rating less than 1-year old, and the consensus target assumes a 10% upside. 

Medtronic Results Are On The Mend 

Medtronic had a decent quarter despite the headwinds it is facing. The company reported $7.7 billion in revenue for growth of 0.5% which outpaced the Marketbeat.com consensus estimate by 220 basis points. This is despite FX headwinds and divestitures that leave organic growth at up 4.1%, driven by strength in all segments.

On an organic basis, Neuroscience led with a growth of 7% but Medical Surgical and Diabetes contributed to growth. The US, which accounted for 52% of sales, grew by 3% on a regional basis while international and emerging markets declined. 

The company’s margins continue to be pressured but shrinkage was less than expected. The adjusted $1.30 in EPS fell 4.4% versus last year but beat the analyst's target by $0.03 and momentum is expected to build in FQ4. To that end, the company raised its full-year guidance to a range that brackets consensus on the top end and is slightly above it on the bottom.

Not news to spark a major rally but enough to support the share price given the fair 16X earnings multiple and 3.2% dividend yield. 

"Given our third quarter performance, we are raising our full year outlook and expect our momentum to continue in the fourth quarter," said Karen Parkhill, Medtronic chief financial officer. "As we look ahead, we are focused on delivering durable topline growth and significant expense reductions as we navigate through macro headwinds from foreign currency and inflation. And, we are committed to continued investment in our growth drivers to ensure long-term value creation."

The Institutions Call The Bottom In Medtronic 

The institutional activity in Medtronic is telling. The institutions, on balance, shifted into buy mode in Q4 of 2022 and then accelerated their activity in Q1. Institutional buying in Q1 is already at the highest level in years, and it may accelerate again now the results are in. The institutions own about 80% of the company. 

The charts show a clear Head & Shoulder Bottom that has only to be confirmed by the price action. The market is wrestling with resistance at the short-term moving average/neckline, but this may not last long. Moving above the neckline would be a bullish trigger and could lead the market to the next resistance target, nearly $85.